Question

Explain the differences between Common Stock and Preferred Stock. What is a stock split?

Answer 1

Differences between Common Stock and Preferred Stock are as follows:-

• Common stock gives the investor voting right (usually one vote per share of stock), whereas there is no such right in preferred stock, but it comes with some extra rights.
• Preferred stock give fixed dividends, whereas Common stock dividend vary according to earnings.
• Common stock represents the ownership of the firm whereas it is not so in case of preferred stock.
• Common stock are more riskier, however Preferred stock have less risk.

Stock split:- Stock split is split where the value of a share and the number of shares are changed, in such a proportional way

that the value decreases as the number of shares increases, while the market cap remains unchanged. For example,

If a company splits 2-for-1, 500 shares at $20 then after split it becomes, 1,000 shares at $10.

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