Describe the rights and advantages belonging to shareholders
There are many rights and advantages pertaining to shareholders. First, common shareholders have the right to vote. Through this, shareholders can appoint the board members and make the firm’s decisions such as mergers (Howell, Nd). Secondly, shareholders have the right to receive dividends as stated by the company’s board of directors. This provides a stable source of income to the shareholder. However, not all companies pay dividends. Thirdly, shareholders have the right to inspect the records, as well as the books of the firm. They also have the right to bring suit against the company for wrongful acts, if the shareholders feel that their rights have been dishonored, by the officers or directors of the firm.
Additionally, there are numerous advantages and perks of being a shareholder. One of these advantages is the ability to receive discounts as well as other perks. Some firms or companies offer discounts to their shareholders regardless of the number of stocks they own in the company. Numerous firms also give special perks to shareholders who own share equal to or more than 100 in the company. A typical example is the Ford Company; the firm offers discounted pricing of Ford vehicle purchase to shareholders who own 100 shares or more in the company for six months or more.
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Explain the differences between the Standard and Poor's 500 Index and the Dow Jones Industrial Average. Which is a better measure of stock market performance? Why?
Fundamentally, the difference between the Dow Jones Industrial Average (DJIA) and the Standard and Poor’s 500 (S&P 500) lies in their diversity and weighing methodology. The DJIA is weighted by stock price; this means that high-priced companies have a significant impact on the Dow’s movement (Martin, 2014). On the other hand, the S&P 500 is weighted by market capitalisation (Martin, 2014). This means that the market cap multiplies the number of shares by the stock price to arrive at the total value of the firm. A bigger share of the stock is represented by a larger market cap and vice versa. The DJIA is composed of 30 companies that are all titan in their fields whereas the S&P 500 represent a broader sample company, and also industries of different sizes (Martin, 2014). The S&P 500 states that its companies, which are 500, represents 75% of the market activity whereas the DJIA asserts that its index represents 27% of the stock market activity of the United States. Compared to the DJIA index regarding the stock market, the S&P index is a better measure since it signifies a more substantial majority of the stock market activity. Additionally, the S&P 500 index is a better measure of stock performance because it is weighted by market capitalisation as opposed to DJIA index which is weighted by stock price.
Describe the differences between common stock and preferred stock.
There are numerous differences between common stock and preferred stock. Some of the differences are as discussed below in the points given below;
Common stock is a type of stock usually issued by the firm to raise capital, and it indicates part ownership, as well as carry voting rights. On the other hand, preferred stock is a type of stock issued by a company which gets priority when it comes to the payment of dividend and repayment of capital (AllBusiness Editors, N.d).
Compared to a preferred stock whose tendency to grow is slightly slow, common stock has high growth potential.
Common stock entitles shareholder voting rights whereas preferred stock does not hold voting rights (AllBusiness Editors, N.d).
Shareholders of common stock are not entitled to an arrear of dividend, if the firm didn’t pay it in the previous year, as a result of insufficient funds. On the other hand, preferred stockholders are entitled to arrears of dividends if it was not paid in the previous year by the company.
Common stock is not “callable” meaning that common stock can never be redeemed by the firm. On the other hand, preferred stock is “callable,” meaning the company can buy back the shares either on maturity or when the firm wants to buy back the shares.
Computational Problems
Imagine that on June 4, the Dow Jones Industrial Average closed at 13,598.14, which was up 148.86 points from the previous day's close of 13,449.28. Calculate the return, in percent to four decimal places, of the stock market for June 4.
Solution:
Given;
Therefore;
The cost per stock at a brokerage firm is $0.10. Calculate how much money you would need to buy 150 shares of HiTech, Inc., which trades at $18.22.
Solution:
Given;
Required?
HiTech, Inc.'s growth for the future is forecasted to be a constant 10 percent. HiTech's next dividend is expected to be $1.18. Calculate the value of HiTech stock when the required return is 12 percent.
Solution:
Given;
Required?
The value of HiTech when the required return is 12%.
Preferred stock from HiTech, Inc. pays $1.20 in annual dividend. Calculate the value of the stock if the required return on the preferred stock is 4.5 percent.
Solution:
Given;
Require?
Value of stock
HiTech, Inc. has earnings per share of $1.82 and a P/E ratio of 31.54. Calculate the stock price.
Solution:
Given;
Required?
Stock price
References
AllBusiness Editors. (N.d). What is the Difference Between Common Stock and Preferred Stock? [Online]. Available at: https://www.allbusiness.com/what-is-the-difference-between-common-stock-and-preferred-stock-3779142-1.html . Accessed 13 th Jan 2019.
Howell, R. (N.d). What are two of the Rights that Common Shareholders of Corporation Have? [Online]. Available at: https://smallbusiness.chron.com/two-rights-common-shareholders-corporation-have-62298.html . Accessed 13 th Jan 2019.
Martin, R. (2014). Why the S&P 500 is a Better Gauge than the Dow. [Online]. Available at: https://www.cbsnews.com/news/dow-jones-industrial-average-sp-500-which-is-better/ . Accessed 13 th Jan 2019.
