Week Two Individual: Securities Paper

Week Two Individual: Securities Paper

Jewell

University of Phoenix

FIN 571

George Karlsven

Aug 8, 2010

Introduction

This week assignment is to answer three main questions from this week’s readings. One is to describe the characteristics of common stock, preferred stock and bonds. The second issue is to discuss the pros and cons of common stock, preferred stock and bonds from the perspective of an issuer. Third is to discuss the pros and cons of common stock, preferred stock, and bonds from the perspective of an investor.

Characteristics of Common stock, Preferred Stock and Bonds

The definition of Common stock: Stock that has no predetermined rate of dividends and is the last to obtain a share in the assets when the corporation liquidates. It usually confers voting power to elect the board of directors of the corporation. (Emery, d., Finnerty, J., Stowe, J.,2007).

The definition of Preferred stock: Stock that typically has some priority over other shares in the payment of dividends or the distribution of assets upon liquidation (Emery, d., Finnerty, J., Stowe, J.,2007).

The definition of Bonds: A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities (Emery, d., Finnerty, J., Stowe, J.,2007).

Views from the Perspective Investor

The Pros of the common stock is has four main key items; 1) voting rights, 2)dividend rights, 3) liquidation rights, 4) preemptive rights (Emery, d., Finnerty, J., Stowe, J.,2007). By owning part of the company one can help elect the board of directors and voting on corporate policy. The Cons for the issuer regarding common stock is the security is not redeemable by issuer. On which the issuer can only offer to repurchase the shares (Emery, d., Finnerty, J., Stowe,...