Session 14: Equity Analysis and Valuation
Reading 58: Overview of Equity Securities
LOS f: Compare and contrast the risk and return characteristics of various types of equity securities.
Other things equal, which of the following types of stock has the most risk from the investor’s perspective?
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A) |
Callable preferred share. | |
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C) |
Callable common share. | |
Callable shares have more risk than putable shares because the issuer can exercise the call option (which limits the investor’s potential gains) while the investor can exercise the put option (which limits the investor’s potential losses, assuming the firm is able to meet its obligation). Preferred shares have less risk for the investor than common shares because preferred shares have a higher priority claim on the firm’s assets in the event of liquidation, and because preferred dividends typically must be paid before common dividends may be paid. | 
发表于 2011-3-30 11:18
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