Answer:
1. Stocks are held by equity owners. The equity owners are the common stockholders and the preferred stockholders, who have some preference over the common stockholders. Because of this preference which reduces their risk exposure, preferred stockholders are regarded as part-owners, leaving the common stockholders to be the ultimate, risk-bearing owners. Therefore, their level of participation in the distribution of profits is higher than the preferred stockholders.
Another way to differentiate stockholders as owners of a company is to look at debt holders. These are regarded as creditors to the company. They finance the company for some fixed interest. They do not participate in profit sharing. They are different from the stockholders, who may be preferred stockholders or common stockholders.
1b. The price of a stock is initially fixed by the company when the par or stated price is determined. When the stock goes public and issued in the stock exchange, the price is then determined by the market forces of supply and demand. The stock price can also be determined by the book value of the company divided by the outstanding shares.
2. Three notable forms of investing money are:
a) Buying a company's stocks
b) Investing in bonds
c) Investing in Government-backed treasury bills or bank savings
b) Comparison
Stocks Bonds Treasury/Savings
1. Term period Permanent Long-term Short-term
2. Returns Dividend /capital Fixed interest Fixed interest
appreciation
3. Risk profile High Limited Low
3. The three uses of money:
a. To pay and receive wages: Chick-Fil-A, where you work give you your paycheck in the amount of $120.00. There is an exchange with cash for labor.
b. To save in the bank: You deposit your check in the bank and the bank credits your debit card account in the sum of $120. There is an exchange with cash for a debit card. The debit card is equivalent to the cash in bank deposit.
c. To pay for goods and services: You buy the pair of jeans for $30 using your debit card, which the cashier debits accordingly. There is an exchange of cash for the jeans.
Explanation:
Money is a means of exchange for goods and services. It can also be invested in stocks, bonds, or savings to earn some form of interests.
