FNCE 3001 Walden University Stocks Company Valuation Essay

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What does it mean to own a stock? You may knowthat a stock is an investment and that it can go up or down, but thereis more to owning a stock than that. When you own a stock, you own afraction of the company. If it is just one stock, then it is likely anincredibly small fraction, but institutional investors and even someindividuals may accumulate enough stock in a company to own asignificant portion of the company. It is important for you, as a shareholder of the company, to understand that you may be entitled tocertain privileges, such as voting rights or dividends. Additionally,there are different types of stocks (e.g., common and preferred), andyou should understand the difference between them before making aninvestment decision in a company.

For this Assignment, you will explain thedifferences between common stock and preferred stock, as well as explainother aspects of common stocks, such as potential total return andvaluation. You will describe how dividends affect stocks and their totalreturns.

• What are a few differences between common stock and preferred stock? (75–150 words, or 1–2 paragraphs)
• What makes up the potential total return of a common stock that you purchase? (75–150 words, or 1–2 paragraphs)
• Why are stocks generally more difficult to value than bonds? (75–150 words, or 1–2 paragraphs)
• Why might a company choose to not pay dividends? (75–150 words, or 1–2 paragraphs)
• Under what two assumptions can you use the dividend growth model todetermine the value of a share of stock? (150–225 words, or 2–3paragraphs)
• Based on the dividend growth model, what are the two components ofthe total return on a share of common stock? Which do you think istypically larger? (75–150 words, or 1–2 paragraphs)