Preference Stock

This is the English designation for stock that is preferred over other classes as to dividends and assets. It is equivalent to what in the United States is called preferred stock when there is only one class of preferred stock, or to what is called first preferred when there are two classes. Preference stock is sometimes divided into classes, as first preference, second preference, etc., with the right to dividends in the order named.

Preferred Ordinary Stock

English - also called B stock - receives a dividend at a fixed rate before any payment can be made on the deferred ordinary stock. For additional information see Preferred Stock.

Preferred Stock

Stock that is preferred as to dividends and assets; it must receive a dividend before a dividend can be paid on the common stock, and in a distribution of assets it participates ahead of the common stock. Cumulative preferred stock is stock the dividends on which, if not paid regularly or in full, accumulates, and must be paid in the future before a dividend can be paid on the common stock.. Preferred stock is the English designation for preferred ordinary (common) stock. When for dividend purposes the ordinary stock of a company has been divided into two parts called preferred or "B" stock and deferred or "A" stock, the dividend on the "A" stock is deferred until a fixed amount has been paid on the "B" stock.

This "B," or preferred stock, is not the same as preferred stock in the United States. What in the United States is called preferred stock is in Great Britain called preference stock, and preference stock in Great Britain may be divided into two or more classes called first preference, second preference, etc., just as preferred stock in the United States may be divided into two or more classes called first preferred, second preferred, etc. When, however, there is but one class of preference stock ahead of an ordinary stock in Great Britain, the "B," or preferred stock, is equivalent to second preferred stock in the United States.

Preference stock is sometimes divided into classes, as first preference, second preference, etc., with the right to dividends in the order named.

The amount named in excess of the par (face) value. When a stock, for instance, is selling at a premium, the premium is the amount it brings beyond its par or face value. When a stock is lending at a premium (see Borrowing and Lending Stocks), the premium is the amount paid by the borrower of the stock to the lender of it for the use of it. The purpose, usually, for which a stock is borrowed is to enable the borrower, who has sold it short (sold stock he did not possess), to make delivery to the purchaser.

In Great Britain when a stock or other security is at a premium the premium is reckoned at so much in the pound on shares and at a percentage on stock or bonds.

In insurance in Great Britain the premium is the consideration paid by the policy holder for insurance. Thus, a premium of 20 shillings per cent. means that 20 shillings is the premium on each £100 insured.

Principal

The capital sum upon which interest is payable; also, the one who employs a broker or other agent.

A principal is responsible for the act of an agent, but an agent who exceeds his authority renders himself personally liable.

A person who has given money to his own agent to be delivered to his creditor cannot set up the claim that he has paid his creditor unless the money actually reaches the creditor. In other words, while the money is in the control of the agent of the debtor it is at the debtor's risk, and it cannot be charged against the creditor any more than if it remained in the debtor's own hands.

Privilege

A general name for a call, put, spread or straddle, information as to each of which is furnished under its own title.

There can be no loss to the buyer of a privilege beyond the amount paid for it. Privileges are legal and are enforceable as contracts, but they are not recognized by the New York Stock Exchange.

Privileges are often bought as a protection against loss on transactions in the stock market. Illustration: One hundred shares of stock are bought at 100. A put under which the stock can be delivered at 98 is purchased for 1%, which makes the net price of the put 97. Then, if the stock goes down to say 94, the stock owned by the holder of the put can be put (delivered) to the issuer of the put at 98 so that the net loss is only 3% instead of 6%, as would be the case if no put had been bought and the stock had to be sold at 94. On the other hand, should the stock go up to say 106, only the cost of the put would have to be deducted from the profit on the stock.

In the case of a stock sold short a call would be employed for protection against loss. If the stock were sold short at 100 and if a call at 102 were purchased for 1% and the stock advanced to 106, the net loss would be only 3%, as against 6% if no call had been purchased and the stock had to be covered (bought back) at 106. If the stock against which the put was bought went down to 94, only a deduction of 1%, the cost of the put, would have to be made from the profit on the stock.

Calls and puts on grain are based on the same general principle as those on stocks, but they are not employed to any extent except to limit loss. In some states puts and calls on grain are illegal.