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How is a stock trade made?

First, please contact the office at (516) 876-4918 to speak to the representative of the day to open an account.

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Convertible Preferred Stock  (See Preferred Stock)

Convertible preferred stock is preferred stock that gives the shareholder the option of exchanging preferred shares for common at a given ratio: for example, one convertible preferred share of XYZ Corporation stock for four shares of XYZ common stock.  Normally, the fixed dividend rate on convertible preferred stock is slightly less than on nonconvertible preferred because of the conversion feature. Also, the convertible preferred is usually subordinate to other preferred stock, so an investment in convertible preferred may not be as safe as one in preferred stock.

Convertible preferred stock can offer a better inflation hedge than preferred stock. Preferred stock continues to pay a fixed dividend rate regardless of fluctuations in the value of common stock. Convertible preferred stock, on the other hand, gives the shareholder the option of exercising the conversion feature so that he or she can benefit from future common stock gains. The value of convertible preferred stock is affected by prevailing interest rates. If interest rates drop below the fixed dividend rate, the value of the shares will increase. Increases in interest rates tend to reduce the value of the stock.  Also, the value of convertible preferred stock will generally increase to some extent as the value of the common stock increases. Likewise, the value may decrease as the price of common stock goes down.  However, the value of convertible preferred stock should not fall below a floor amount, i.e., the price at which the fixed dividend rate represents a reasonable return on investment for a fixed income security.

Convertible preferred stock is more income oriented and less growth oriented than common stocks.  Conversely, convertible preferred stock is less income oriented and more growth oriented than the other preferred stock.

FREQUENTLY ASKED QUESTIONS ABOUT PREFERRED STOCKS

WHAT IS A PREFERRED STOCK?

A preferred stock constitutes a separate and very special type of ownership in a company. This Special status entitles the owners to:
(A) Receive Dividend payment prior to any distribution of dividend to common stocks holders.
(B) Claim on the assets of a company of a preferred stocks holder is senior to the claim of common stock holders. 

DIVIDEND PAYMENT ON PREFERRED STOCKS

A Preferred stock carries a fixed dividend, which must be paid before dividend can be distributed to common stock holders.

WHEN TO BUY PREFERRED STOCKS?

The best time to buy preferred stock for income happens to be when the current rate or return is fairly high in relation to other form of income producing investments. 

FACTORS AFFECTING THE PRICE OF A PREFERRED STOCKS

The most important factor influencing a preferred stock price is the prevailing interest rate in the �Money Market� i.e. government bond, notes and bills. - commercial paper - federal fund - bankers acceptance - certificate of deposit.

PAR VALUE OF PREFERRED STOCKS

Preferred stock is usually issued at a par value of $ 25.00. Sharp move in interest rate may cause a preferred stock to trade above par (at a premium) or below par (at a discount). Par value is also affected by he credit rating of the issuing company.

TYPES OF PREFERRED

Of the many types of preferred we have: cumulative preferred, non-cumulative preferred, participating preferred, convertible preferred, senior and junior preferred.

CALL FUTURE

Most preferred are issued with the option of retirement at the management discretion. Usually call price is at a premium over par..

FOUR KEYS HOW BEST TO PROFIT FROM BUYING PREFERRED STOCKS
 

1 - Buy when they offer a good rate or return

2 - Buy them when they are depressed in price

3 - Buy Preferred Stock most likely to pay off large preferred dividend arrears

4 - Buying convertible preferred and exercising this privilege at an advantageous time 

PREFERRED STOCKS AND TAXES

Dividend income from preferred Stock is taxable income to an individual.

For corporations, 70% of dividend income from preferred stock qualify for Dividend Received Deduction (DRD).

PREFERRED STOCKS AND IRA � 401K-PENSION PLAN

Preferred stock can be part of any tax-deferred plan.

WHO BUYS PREFERRED STOCKS?

Individual investors, institutional investors, pension fund and other investors interested in current income buy preferred stocks.

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