Chapter 2: Asset Classes - Equity

Question 1

Features of ordinary shares

Answer 1

Common stock - paid last if a company is liquidated.Value falls if demand falls
* Shareholders recieve dividends
* Ordinary shares recieve votes - typically 1 vote/1 share. Used at AGMs. Can appoint proxies to vote on their behalf
* Many shares have nominal value - represents minimumamount a company recieves from subscribers when shares are issued.
* Mostly registered shares

Question 2

Types of preference shares- 5 types

Answer 2

• Cumulative - paid dividends before ordinary shareholders + recieve upaid divs from prevous years
• Participating - participate in higher dividend distributions if there are additional funds available.
• Redeemable - Issuing company can buy the shares back at a later date at an agreed price
• Convertible - right but not hte obligation to convert pref shares to ordinary shares. Can prevent downsides of pref shares
• Zero coupon - Pay no dividend but can provide profit to the shareholder if sold above the buy price.

A preference share can exhibit one or multiple of the above features

Question 3

Preference shares pros/cons

Answer 3

• • has certain protections such as fixed dividend and priority in teh bankruptcy chain
• • less liquid than ordinary, not actively monitored and not easily purchasable by investors
• • oridnary shares often outperform pref shares