How do you know how much equity & how much premium are in a stock?

Question

When you buy a stock at $11 for example, how do you know what part of that is actual ownership in a company (equity) and how much is just the premium you paid due to high demand in that stock?  I've never traded before and I'm curious.  Please help.  Thank you guys!

Answer 1

If you are buying common stock there is no premium or discount involved.  You are buying a share of the company at the percieved value of the company.
If you buy preferred stock, issued at 8% and $25 per share, the stock trades at a premium if it is selling for over $25.  If a stock is selling for less than $25, it is trading at a discount.  CHS, Inc. currently has perferred stock, issued at $25, now trading at $26.17 per share.  CHSCP on NASDAQ.

Corporate bonds work much like preferred stock.  Bonds can trade at a discount or at a premium relative to the issue price.  If you buy a $10 bond at 6% and the prevailing interest rates go up, your bond value will drop.

Answer 2

believe you would take the net value of the company and divide by the number of shares outstanding. You should be able to find that info on the company's annual financial report.

Answer 3

Stocks have a "book value" which is the value of the assets of the company divided by the shares outstanding. You can find the book value in the annual report.

The premium is the difference between the market price of the stock and the book value.

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