1. Common Stock vs Preferred Stock:
Common Stock:
- - Represents ownership in a company and a claim on a portion of the company's assets and earnings.
- - Has voting rights, allowing shareholders to participate in corporate decision-making.
- - Dividends are not guaranteed and can fluctuate.
- - In the event of liquidation, common stockholders are paid after preferred stockholders.
Preferred Stock:
- - Represents partial ownership in a company but typically does not carry voting rights.
- - Typically has a fixed dividend rate, which is paid before dividends to common stockholders.
- - In the event of liquidation, preferred stockholders have priority over common stockholders.
- - Can be converted to common stock or have a callable feature, allowing the company to redeem shares at a predetermined price.
Comparison:
- - Common stockholders have voting rights, while preferred stockholders generally do not.
- - Preferred stock usually has a fixed dividend rate, while common stock dividends can fluctuate.
- - Preferred stockholders have priority in receiving dividends and in the event of liquidation.
2. Dividends vs Dividends in Arrears:
Dividends:
- - Payments made by a corporation to its shareholders, usually in the form of cash or additional shares.
- - Typically paid from a company's profits or retained earnings.
- - Can be regular (e.g., quarterly) or special (one-time) dividends.
Dividends in Arrears:
- - Unpaid dividends owed to preferred stockholders.
- - Occur when a company does not pay the full dividend amount it has committed to for preferred stockholders.
- - Must be paid before any dividends can be paid to common stockholders.
Comparison:
- - Dividends are regular or special payments to shareholders, while dividends in arrears are unpaid dividends owed to preferred stockholders.
- - Dividends in arrears must be paid before any dividends can be paid to common stockholders.
3. Bond Premium vs Bond Discount:
Bond Premium:
- - Occurs when a bond's market price is higher than its face value.
- - Usually results from a decrease in market interest rates, making the bond's fixed interest payments more attractive to investors.
- - Bond premium is amortized over the life of the bond, reducing the bond's book value.
Bond Discount:
- - Occurs when a bond's market price is lower than its face value.
- - Usually results from an increase in market interest rates, making the bond's fixed interest payments less attractive to investors.
- - Bond discount is amortized over the life of the bond, increasing the bond's book value.
Comparison:
- - A bond premium represents a bond selling for more than its face value, while a bond discount represents a bond selling for less than its face value.
- - Bond premiums typically occur when market interest rates decrease, while bond discounts occur when market interest rates increase.
4. 3 Main Fee Structures of Mutual Funds:
1. Sales Loads: Fees paid when buying or selling shares of a mutual fund. They can be front-end loads (charged when buying shares) or back-end loads (charged when selling shares).
2. Expense Ratio: The annual fee that covers the fund's operating expenses, including management fees, administrative fees, and other costs. It is expressed as a percentage of the fund's average net assets.
3. 12b-1 Fees: Annual fees charged by some mutual funds to cover marketing and distribution expenses. These fees are included in the fund's expense ratio.
5. NAV (Net Asset Value):
- - NAV represents the per-share value of a mutual fund, calculated by dividing the fund's total net assets by the number of outstanding shares.
- - Total net assets are calculated by subtracting the fund's liabilities from its total assets.
- - NAV is typically calculated at the end of each trading day and is the price at which investors can buy or sell shares of the mutual fund.