Microsoft PowerPoint - PoF.ppt

Types of stocksƒ 17

Common stock

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... residual claim on the earnings of the firm

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Common stockholders can expect to receive their income as

• (common) dividends and/or- capital gains

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In general, firms that pay out only

a small fraction of earnings as common

dividends can be expected to grow fast

er than firms that pay out a larger

fraction

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Preferred stocks

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... mixture between fixed and variable income security

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Preferred stocks are usually perpetual

securities having no maturity date,

although there are exceptions (however, preferred stocks are usually callable)

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Cumulative

versus

noncumulative

preferred stock

Single-period random cash flows: Stocks