Pakam, Khiezna E.

ABM 12 – St. Gregory Nazianzen

Business Finance

Assignment!

1. What are the advantages and disadvantages of Preferred Stock and

Common Stock?

Advantages of Preferred Stock:

 Investors with preferred stock receive the first dividends.

 Some preferred stock provides cumulative shares.
 It gives investors a higher claim on any company assets.
 You might have the option to trade in your preferred shares for common
stock.
 The cost of raising capital for share issuance is lower.
 Companies can issue callable preferred shares.
 You know what your bottom line will be.
 Preferred stock receives grading from rating agencies.
 There can be some tax advantages to consider with preferred stock.
 It gives a company access to VC firms and angel investors.

Disadvantages of Preferred Stock:

 You don’t receive voting rights.

 The time to maturity can be problematic for some investors.
 Some companies don’t put their profits into dividend payments.
 Guaranteed dividends might not ever get paid.
 Preferred stock creates a limited upside potential.
 There isn’t much industry diversification for preferred stock today.
 There is rarely equity growth in preferred stock.
Advantages of Common Stock:

 You can invest in companies with limited liability.

 Common stocks offer a higher earning potential.
 You can easily purchase common stock on virtually any trading platform.
 Common stocks can provide dividends.
 You can trade common stocks in a variety of ways.
 You’ll get to take advantage of a growing economy.
 It’s the best way to get ahead of inflation problems.
 You can leverage the value of common stock as collateral.
 It is possible to buy and sell common stock around the world.

Disadvantages of Common Stock:

 You are the last person to get paid during company liquidation.
 You don’t have much control over your investment.
 Your portfolio can lose substantial value in a single day.
 Companies are not required to pay dividends on common stocks.
 You might need to navigate several different common stock classes.
 It can take time to generate significant gains.
 Investing in common stock can be an emotional rollercoaster at times.
 You will face high levels of professional competition when investing in
common stocks.

2. We have identified two types of stocks, which type you believe that will
give you more profit?

Preferred stock is generally considered less volatile than common stock but
typically has less potential for profit. Preferred stockholders generally do not
have voting rights, as common stockholders do, but they have a greater claim
to the company’s assets. Most people who buy stock choose common stock
over preferred stock because holders of common stock have voting rights in
the corporation and their dividends increase if the company's stock increases
in value. To sum it all up, common stock is more profitable than preferred
stock.