treasury stock

Examples of treasury stock in the following topics:

• Treasury Stock

  • Treasury stock is a company's issued and reacquired capital stock; the stock has not been retired and is legally available for reissuance.
  • Treasury stock is the corporation's own capital stock it has issued and then reacquired.
  • Treasury stock can be accounted for using the cost or par value methods.
  • When the stock is resold, treasury stock is credited for the par value of the stock sold.
  • Companies that issue common stock and reacquire it in the future, reclassify it as treasury stock.

• Repurchasing Stock

  • One way of accounting for treasury stock is with the cost method.
  • Therefore, common stock is debited and treasury stock is credited.
  • If the treasury stock is sold for more than cost, then the paid-in capital treasury stock is the account that is increased, not retained earnings.
  • The firm then resells 7,500 shares of treasury stock for $28.
  • The reacquired stock is referred to as treasury stock.

• Issuing Stock

  • The process of issuing stock-- or shares-- of a publicly traded company involves several steps.
  • Issued shares are the sum of outstanding shares and treasury stock, or stock reacquired by the company.
  • Shares of common stock are primarily issued in the United States.
  • Owning common stock tends to be riskier than owning preferred stock; yet over time, common shares on average perform better than preferred shares or bonds.
  • Some other features associated with preferred stock include convertibility to common stock, non-voting rights, and the potential of shares to be either cumulative or non-cumulative of company dividends.

• The Common Financial Instruments

• Repurchasing Shares

  • A share repurchase is when a company buys its own stock from public shareholders, thus reducing the number of shares outstanding.
  • The company then can either retire the shares, or hold them as treasury stock (non-circulating, but available for re-issuance).
  • The market capitalization of the company is unchanged, meaning that a reduction in the number of shares outstanding must be accompanied by an increase in stock price.
  • Open Market: The firm buys its stock on the open market from shareholders when the price is favorable.

• Types of Stock Market Transactions

  • Types of stock market transactions include IPO, secondary market offerings, secondary markets, private placement, and stock repurchase.
  • An initial public offering (IPO), or stock market launch, is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange, for the first time.
  • Stock repurchase (or share buyback) is the reacquisition by a company of its own stock.
  • The company either retires the repurchased shares or keeps them as treasury stock, available for re-issuance.
  • Firstly, some part of profits can be distributed to shareholders in the form of dividends or stock repurchases.

• The "Bond Yield Plus Risk Premium" Approach

  • The equity risk premium is essentially the return that stocks are expected to receive in excess of the risk-free interest rate.
  • Treasury Bond yield)
  • The dividend yield plus projected earnings growth, minus the 10-year Treasury yield
  • It can be very difficult to get an accurate estimate of the risk premium on an equity, having a duration of roughly 50 years, using a risk-free rate of such short duration as a 10-year Treasury bond.

• Value of a High Dividend

  • A high-yield stock is generally considered as a stock whose dividend yield is higher than the yield of any benchmark average such as the 10 year U.S.
  • Treasury note.
  • A high dividend yield indicates undervaluation of the stock because the stock's dividend is high relative to the stock price.
  • High-yield stocks tend to outperform low yield and no yield stocks during bear markets because many investors consider dividend paying stocks to be less risky.
  • Discuss the advantages of owning stock that has a high dividend

• NYSE

  • The New York Stock Exchange is the world's largest stock exchange by market capitalization at $14.242 trillion as of December 2011.
  • The New York Stock Exchange, commonly referred to as the NYSE, is a stock exchange, or a secondary market.
  • With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries.
  • They also gain advertising and a boost in prestige, which likely increases their stock value.
  • To be listed on the New York Stock Exchange, a company must have issued at least a million shares of stock worth $100 million and must have earned more than $10 million over the last three years.

• Answers to Chapter 2 Questions

  • Stocks are ownership of a corporation, while bonds are a loan to a corporation.
  • Primary market is for newly issued stocks and bonds, while the secondary markets allow investors to buy or sell their existing stocks or bonds.
  • Capital market instruments are Treasury notes (T-notes), Treasury bonds (T-bonds), general-obligation bonds, revenue bonds, and mortgages.
  • Stock has no maturity date because a corporation can theoretically live forever.
  • First, a bank acquires stock in another bank, allowing it to cross a state line.