Equity Asset Valuation Workbook

Jerald E. Pinto

• Publisher: Wiley
• Year: 2020
• ISBN:
  9781119628200
• Edition: 4
• Topic: Business
• Subtopic: Investments & Securities
• Index: Business

Equity Asset Valuation Workbook, Fourth Edition provides the key component of effective learning: practice. This companion workbook conveniently aligns with the text chapter-by-chapter, provides brief chapter summaries to refresh your memory on key points before you begin working, and explicitly lays out the learning objectives so you understand the "why" of each problem. These features reinforce essential theories and their practical application, assist you in gaining proficiency in the core concepts behind these theories, and accurately determine when and how to implement them. Those who self study will find solutions to all exercise problems. This workbook lets you:

• Refresh your memory with succinct chapter summaries
• Enhance your understanding with topic-specific practice problems
• Work toward explicit chapter objectives to internalize key information
• Practice important techniques with real-world applications

For everyone who wants a practical route to mastering the general analysis of stock shares held by individuals and funds, Equity Asset Valuation Workbook, Fourth Edition lives up to its reputation for clarity and world-class practice based on actual scenarios investors face every day.

PART I
Learning Objectives, Summary Overview, and Problems

CHAPTER 1
Overview of Equity Securities

Learning Outcomes

After completing this chapter, you will be able to do the following:

• describe characteristics of types of equity securities;
• describe differences in voting rights and other ownership characteristics among different equity classes;
• distinguish between public and private equity securities;
• describe methods for investing in non-domestic equity securities;
• compare the risk and return characteristics of different types of equity securities;
• explain the role of equity securities in the financing of a company’s assets;
• distinguish between the market value and book value of equity securities;
• compare a company’s cost of equity, its (accounting) return on equity, and investors’ required rates of return.

Summary Overview

Equity securities play a fundamental role in investment analysis and portfolio management. The importance of this asset class continues to grow on a global scale because of the need for equity capital in developed and emerging markets, technological innovation, and the growing sophistication of electronic information exchange. Given their absolute return potential and ability to impact the risk and return characteristics of portfolios, equity securities are of importance to both individual and institutional investors.

This chapter introduces equity securities and provides an overview of global equity markets. A detailed analysis of their historical performance shows that equity securities have offered average real annual returns superior to government bills and bonds, which have provided average real annual returns that have only kept pace with inflation. The different types and characteristics of common and preference equity securities are examined, and the primary differences between public and private equity securities are outlined. An overview of the various types of equity securities listed and traded in global markets is provided, including a discussion of their risk and return characteristics. Finally, the role of equity securities in creating company value is examined as well as the relationship between a company’s cost of equity, its accounting return on equity, investors’ required rate of return, and the company’s intrinsic value.

We conclude with a summary of the key components of this chapter:

• Common shares represent an ownership interest in a company and give investors a claim on its operating performance, the opportunity to participate in the corporate decision-making process, and a claim on the company’s net assets in the case of liquidation.
• Callable common shares give the issuer the right to buy back the shares from shareholders at a price determined when the shares are originally issued.
• Putable common shares give shareholders the right to sell the shares back to the issuer at a price specified when the shares are originally issued.
• Preference shares are a form of eq...