Peachtree Securities

Financial Concepts:

1) ​  S​ tock

A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.

1. ​  D​ ifference between Stock and Bond

Stocks represent an ownership interest in a corporation, while Bonds are a form of long-term debt in which the issuing corporation promises to pay the principal amount at a specific date.

Stocks pay owners dividends, a distribution of a corporation's profits. Bonds pay holders interest.  

1. ​  P​ referred Stock

Preferred stock combines features of debt, in that it pays fixed dividends, and equity. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.

1. ​  C​ ommon Stock

Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure; in the event of liquidation, common shareholders have rights to a company's assets only after bondholders, preferred shareholders and other debt holders are paid in full.

1. ​  S​ inking Fund Provision

A sinking fund is a means of repaying funds borrowed through a bond issue through periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market. This provision is really just a pool of money set aside by a corporation to help repay previous issues.

6) Constant Growth Model

The Gordon Growth Model is used to determine the intrinsic value of a stock based on a future series of dividends that grow at a constant rate. 

Questions and Answers:

6. TECO has $54,956,000 of preferred stock outstanding.

1. Suppose its Series A, which has a $100 par value and pays a 4.32 percent cumulative dividend, currently sells for $48.00 per share. What is its nominal expected rate of return?

Its effective annual rate of return? (Hint: Remember that dividends are paid quarterly. Also, assume that this issue is perpetual.)

       Nominal Expected Rate of Return = (Par V alue xC Cuurmreunlta tPivreic Deividend Rate) = (100 4X8 4.32) = 9% [pic 1]