CHAPTER 8
OVERVIEW OF EQUITY SECURITIES
LEARNING OUTCOMES
After completing this chapter, you will be able to do the following:
- Discuss the importance and relative performance of equity securities in global financial markets.
- Discuss the characteristics of various types of equity securities.
- Distinguish between public and private equity securities.
- Discuss the differences in voting rights and other ownership characteristics among various equity classes.
- Discuss the methods for investing in nondomestic equity securities.
- Compare and contrast the risk and return characteristics of various types of equity securities.
- Explain the role of equity securities in the financing of a company’s assets and creating company value.
- Distinguish between the market value and book value of equity securities.
- Compare and contrast a company’s cost of equity, its (accounting) return on equity, and investors’ required rates of return.
1. INTRODUCTION
Equity securities represent ownership claims on a company’s net assets. As an asset class, equity plays a fundamental role in investment analysis and portfolio management because it represents a significant portion of many individual and institutional investment portfolios.
The study of equity securities is important for many reasons. First, the decision on how much of a client’s portfolio to allocate to equities affects the risk and return characteristics of the entire ...
