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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.
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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 chOriginal toplevel document
Reading 47 Overview of Equity Securities (Intro)
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 portfolio. Second, different types of equity securities have different ownership claims on a company’s net assets, which affect their risk and return characteristics in different ways. Finally, variations in the features of equity securities are reflected in their market prices, so it is important to understand the valuation implications of these features.
This reading provides an overview of equity securities and their different features and establishes the background required to analyze and value equity securities in a global context. It addresses the following questions:
What distinguishes common shares from preference shares, and what purposes do these securities serve in financing a company’s operations?
What are convertible preference shares, and why are they often used to raise equity for unseasoned or highly risky companies?
What are private equity securities, and how do they differ from public equity securities?
What are depository receipts and their various types, and what is the rationale for investing in them?
What are the risk factors involved in investing in equity securities?
How do equity securities create company value?
What is the relationship between a company’s cost of equity, its return on equity, and investors’ required rate of return?
The remainder of this reading is organized as follows. Section 2 provides an overview of global equity markets and their historical performance. Section 3 examines Summary
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