and preferred stocks, as well as bonds. Remember, these yields change all the time due to the fluctuation in stock prices.
XYZ Corporation declares and pays a $2-per-share dividend. Currently, their stock is selling for $60 per share. Their current yield is 3.3 percent.
$2 = 3.3% $60
Sometimes current yields and historical data on current yields can be misleading. There are companies who increase their dividends on a regular basis, thus increasing the current yield each time. Then there are companies who, while very stable and financially sound, have made a practice of paying little or no dividends. To calculate properly the overall rate of return on a stock, go back and look at the average annual compound rate of gain (or loss) over a period of time, assuming all dividends and capital gains were reinvested. This con- siders all capital gains and losses on the stock, instead of just divi- dends.
Many investors trade options to buy or sell common stocks (calls and puts) as a speculative way of investing. Options are traded on orga- nized stock exchanges. They represent one of the more complex investment strategies because of the different ways to structure your options portfolio. While we don’t discuss everything about options here, we talk about put and call options so that you have a better understanding of what they are and how they work.
A call option allows the purchaser to buy from another investor a certain stock or other asset at a predetermined fixed price, the strike or exercise price, at any time during a specified period. A put option allows the purchaser to sell to another investor a certain stock or asset at a set price at any time during the specified period. Options, which are normally around lots (100 shares) of common stock, have standardized quarterly expiration dates. The expiration date is the last date on which the option can be exercised.