The Dow Jones averages, the oldest and best-known indicators, are price-weighted indexes. Many stock market indexes measure the performance of the overall market. Newer varieties of preferred stock include convertible and adjustable-rate issues. Instead, unpaid dividends simply cumulate. A firm's failure to pay the dividend due on preferred stock, however, does not precipitate corporate bankruptcy. Preferred stock usually pays fixed dividends for the life of the firm it is a perpetuity. Stock, or equity, owners are the residual claimants on the income earned by the firm. Each share entitles its owner to one vote on matters of corporate governance and to a prorated share of the dividends paid to shareholders. A federal agency may guarantee the payments of interest and principal on mortgages pooled into its pass-through securities, but these guarantees are absent in private-label pass-throughs.Ĭommon stock is an ownership share in a corporation. The originator that issued the mortgage merely services it, simply "passing through" the payments to the purchasers of the mortgage. Owners of pass-throughs receive the principal and interest payments made by the borrowers. Mortgage pass-through securities are pools of mortgages sold in one package. The equivalent taxable yield offered by a municipal bond equals r m / (1 – t), where r m is the municipal yield and t is the investor's tax bracket. Interest payments (but not capital gains) on these securities are exempt from federal income taxes. Municipal bonds are distinguished largely by their tax-exempt status. Treasury notes and bonds are similar in design to coupon-paying corporate bonds. These are coupon-paying bonds usually issued at or near par value. government borrowing is in the form of Treasury bonds and notes. These securities trade in large denominations, but they may be purchased indirectly through money market funds. Their low maturities and low credit risk ensure minimal capital gains or losses. They are usually highly marketable and have relatively low credit risk. Money market securities are very short-term debt obligations. Please change your browser preferences to enable javascript, and reload this page. You must have javascript enabled to view this website.
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