Slide MGT312 Slide10

Investing in Stocks and
Bonds
Chapter 14

Common Stock
• It is the most basic form of ownership in a
corporation.
• It offers dividend gain and capital gain.
• It has a residual claim after higher level
claims are fulfilled.
• It grants the holders limited liability and
voting rights.

Preferred Stock
• It is a type of fixed-income ownership
security.
• It grants the holders priority of dividend
before common stock holders.
• Convertible preferred stocks are the
securities which can be converted into
common stocks.

Price/Earnings (P/E) Ratio
• P/E ratio is current market price divide by
Earnings per Share (EPS).
• It is a method of valuing stocks.
• It shows how expensive the stock is versus
company’s earnings.
• P/E ratio of 15 means investors are paying
15 times for each $1 of earnings.

Beta
• Beta is the sensitivity of a stock to the
market movement.
• A beta of +1 indicates the stock as risky as
the market.
• A beta of higher than +1 indicates the
stock riskier than the market, and vice
versa.

Types of Stocks

• Cyclical stocks are company’s stocks
whose performance are influenced by the
economy business cycle.
• Countercyclical stocks are company’s
stocks whose performance against the
economy business cycle.