金融市场与金融机构基础(第17章) 英文版答案_31694.doc

ANSWERS TO QUESTIONS FOR CHAPTER 17 (Questions are in bold print followed by answers.) 1. What are the three factors contributing to the significant changes in the common market over the past 50 years? The stock markets have also changed since the early 1960s, due to (1) institutionalization (small investors now play only a minor role); (2) changes in government regulations, e.g. disclosure, types of trades, margin requirements; (3) innovations, e.g. computer technology permits program trading. 2. a. How does common stock differ from preferred stock? b. Why is preferred stock viewed as a senior corporate security? Preferred stock is entitled to a fixed participation in the form of dividends of the earnings of the company. Dividends must be declared and ordinarily they are at the discretion of the board. Common stock is entitled to the residual cashflow, and is junior to the preferred stock both in terms of distribution and liquidation preference. Preferred stock is considered a senior instrument because dividends must be paid before any distribution of dividends can be made to the common stockholders. Also, in a liquidation, the preferred stockholders are paid before the common stockholders, who are considered residual claimants. 3. What is the difference between ordinary dividends and qualified dividends and how is each treated for tax purposes? Ordinary dividends are taxed at the income tax bracket. Qualified dividends receive preferential tax rate, either 5% or 15%, depending on the individual’s regular income tax rate. 4. What is meant by a long-term capital gain and how is it treated for tax purposes? Long-term capital gains are appreciations in value of the stock that has been held for more than one year. It is entitled to preferential tax rate, either 5% or 15% depending on the individual’s regular income tax rate. 5. The following quote is taken from Wayne H. Wagner, “The Taxonomy of Trading Strategies,” in Katrina F. Sherrerd (ed.), Trading Strategies