being repaid.
No-par preferred stock is preferred stock with no stated face value but with a stated annual
dollar dividend.
Preferred stock is often considered quasi-debt because, much like interest on debt, it specifies a
fixed periodic payment (dividend).
Preferred stock is unlike debt in that it has no maturity date.
Because they have a fixed claim on the firms income that takes precedence over the claim of
common stockholders, preferred stockholders are exposed to less risk.
Preferred stockholders are not normally given a voting right, although preferred stockholders are
sometimes allowed to elect one member of the board of directors.
Cumulative preferred stock is preferred stock for which all passed (unpaid) dividends in arrears,
along with the current dividend, must be paid before dividends can be paid to common
stockholders.
Noncumulative preferred stock is preferred stock for which passed (unpaid) dividends do not
accumulate.
A callable feature is a feature of callable preferred stock that allows the issuer to retire the shares
within a certain period time and at a specified price.
A conversion feature is a feature of convertible preferred stock that allows holders to change
each share into a stated number of shares of common stock.
COMMON STOCK VALUATION: BASIC COMMON STOCK VALUATION EQUATION
Step 4.
Add the present value components found in
Steps 2 and 3 to find the value of the stock, P0.
Behavioral finance is a growing body of research that focuses on investor behavior and its impact
on investment decisions and stock prices. Advocates are commonly referred to as behaviorists.
Understanding Human Behavior Helps Us Understand Investor Behavior
Regret theory deals with the emotional reaction people experience after realizing they
have made an error in judgment.
Some investors rationalize their decision to buy certain stocks with everyone else is
doing it. (Herding)
People have a tendency to place particular events into mental compartments, and the
difference between these compartments sometimes impacts behavior more than the
events themselves.
Prospect theory suggests that people express a different degree of emotion toward
gains than losses.
Anchoring is the tendency of investors to place more value on recent information.