1. Investing in Stocks and Bonds
Chapter 14

2. Common Stock It is the most basic form of ownership in a corporation.
It offers dividend gain and capital gain.
It has a residual claim after higher level claims are fulfilled.
It grants the holders limited liability and voting rights.

3. Preferred Stock It is a type of fixed-income ownership security.
It grants the holders priority of dividend before common stock holders.
Convertible preferred stocks are the securities which can be converted into common stocks.

4. Price/Earnings (P/E) Ratio
P/E ratio is current market price divide by Earnings per Share (EPS).
It is a method of valuing stocks.
It shows how expensive the stock is versus company’s earnings.
P/E ratio of 15 means investors are paying 15 times for each $1 of earnings.

5. Beta Beta is the sensitivity of a stock to the market movement.
A beta of +1 indicates the stock as risky as the market.
A beta of higher than +1 indicates the stock riskier than the market, and vice versa.

6. Types of Stocks
Cyclical stocks are company’s stocks whose performance are influenced by the economy business cycle.
Countercyclical stocks are company’s stocks whose performance against the economy business cycle.