Principal benefit of ownership
According to Hickman et al. (2024), “the cash flow that a security holder receives is the Principal benefit of ownership. Without that benefit, the security would be nearly worthless.” Analysts apply time value of money principles to determine the value of any financial security, such as a share of stock or a bond, based on the cash flows that security provides to the holder. All business professionals should understand the concepts of how securities and investments are valued.
Write
In your journal,
- Describe the main factors that influence a stock’s value.
- Explain the primary difference between valuing a common stock with constant growth in its dividends and valuing a common stock with growing dividends (non-constant growth).
- Explain how bonds are different from stocks. Be sure to describe the payments that are made to the owner of the instrument (the bond or the stock), as well as the end value of the instrument.
- Explain how a zero-coupon bond is different from a bond with coupons.
- Explain the two primary components of the relationship between bond prices and interest rates as illustrated in Figure 6.7 (Chapter 6). The interest rate-bond price teeter-totter.
- Ask two questions about security valuation.
Note: Review the Sample Reflective Writing resource for assistance. (attached)
Requirements: clear
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