chapter 7 - finance
Preferred stock has preference over common stock in the:
o Payment of dividends o Distribution of corporate assets
What does the NYSE (New York Stock Exchange) do to sell stocks
The NYSE has a face-to-face auction market and a physical location
If the growth rate is zero, then the capital gains yield is
zero
Target Price
Using a benchmark PE ratio against current earnings yields a forecasted price
The Primary Market
is where stocks are issued for the first time
What are capital gain and dividends to investors in stocks
they are cash flows to investors in stocks
The rights of common stockholders
1 - right to vote on matters of importance 2- right to share proportionally in any residual value in the event of liquidation 3- right to share proportionally in any common dividends paid
what are the 3 special case patterns of dividends growth
1. zero growth 2. Non-constant growth 3. Constant Growth
Cumulative Dividends
If unpaid dividends must be "caught up" before any common dividends can be paid
What can you use to estimate the value of stock
PE ratio and PS ratio
The price of a share of common stock equals
the present value of all expected future dividends
The dividend yield increases if
the stock price decreases
How does NASDAQ sell stock?
NASDAQ has a multiple market maker system and a computer network of securities dealers
Using the zero growth model, what do you need to determine the value of stock?
Need the the discount rate and dividend to determine the value of a stock using the zero growth model
Forward PE ratio
A PE ratio that is based on estimated future earnings
A benchmark PE (price-earnings) ratio can be determined using:
A company's own historical PEs The PEs of similar companies
Dividend growth model
In the dividend growth model, the expected return for investors comes from the growth rate and dividend yield