Chapter 8
Over-the-counter.
A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market? Auction. Private. Over-the-counter. Regional. Insider.
market cap
measure the total value of a company's outstanding shares of stock (the number of share outstanding * current price per share)
designated market maker
A member who acts as a dealer in a limited number of securities on the floor of the NYSE is called a:
floor broker
A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a:
Non-constant growth
"supernormal" growth rates over some infinite time length
Specialists
A NYSE member acting as a dealer in a small number of securities on the exchange floor"market maker"represent the second largest number of people on NYSE
discount rate
A decrease in what will increase the current value of a stock according to the dividend growth model?
designated market maker.
A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a: Floor trader. Floor post. designated market maker. Floor broker. Commission broker.
Brokers
Agents for investors; match buyers with sellers
dealer
An agent who maintains an inventory from which he or she buys and sells securities is called a: Broker. Trader. Capitalist. Principal. Dealer.
NO
Are unpaid preferred dividend debts of the firm?
Right to share in company profits prior to other shareholders.
Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders? Right to share in company profits prior to other shareholders. Right to elect the corporate directors. Right to vote on proposed mergers. Right to all residual income after the common dividends have been paid. Right to a permanent seat on the board of directors.
The number of shares * the number of directors to be elected
How is the number of votes casted for cumulative voting determined?
designated market maker
NYSE members who act as dealers in particular stocks. Formerly known as "specialists". Commit its own capital to provide quotes and help maintain a "fair and orderly market" by trading from its own inventory of shares.
floor brokers
NYSE members who execute customer buy and sell orders
Is unsustainable over the long term.
Supernormal growth is a growth rate that: Is both positive and follows a year or more of negative growth. Exceeds a firm's previous year's rate of growth. Is generally constant for an infinite period of time. Is unsustainable over the long term. Applies to a single, abnormal year.
Requires the growth rate to be less than the required return.
The constant dividend growth model: Assumes dividends increase at a decreasing rate. Only values stocks at Time 0. Cannot be used to value constant dividend stocks. Can be used to value both dividend-paying and non-dividend-paying stocks. Requires the growth rate to be less than the required return.
Preemptive rights
The opportunity to purchase additional shares of stock before they are offered to the general public.
member
The owner of a trading license for the NYSE is called a(n):
capital gains yield
The rate at which the value of an investment grows
the elect directors who hire managers "one share, One vote"
What are shareholder's rights?
classified boards. because directors are placed into different classes with terms that expire at different times
What are staggered boards often called?
dividends
What are the distributions of either cash or stock to shareholders by a corporation called? Coupon payments. Retained earnings. Dividends. Capital payments. Diluted profits.
the post bid prices and ask prices for securities assigned to them make the market by standing ready to buy at bid prices and sell at ask prices
What are the jobs of specialists?
staggering makes it more difficult for a minority to elect a director because fewer directors to elect at once staggering makes takeover attempts less likely to be successful in a majority of new directors.
What are the two basic effects of staggering a board?
Dividend Yield and Capital Gains Yield
What are the two components of the required or total return?
1. the right to share proportionally in dividends 2. The right to share proportionally in assets remaining after liabilities have been paid in a liquidation 3. The right to vote on stockholder matters of grave importance such as a merger. Done at annual or special meeting
What are three additional rights of shareholders beside voting?
Use the PE ratio
What do we use when companies don't pay dividends?
institutional continuity. continuity of the board of directors.
What does staggering provide?
increase liquidity and competition
What does the ECN do?
the persons job/position
What does the color of the coat indicate?
a growing perpetuity
What is an asset that has cash flows that grows at a constant rate?
they often have no voting rights
What is important to note about preferred stock?
management of a firm can raise equity capital by issuing nonvoting or limited-voting stock while maintaining control of the company
What is the primary reason for making more than one class of stock?
Straight line voting
What kind of scenario is this: Each time, the directors are elected one at a time. Smith can cast 20 votes and Jones can cast 80. As a consequence, Jones will elect all of the candidates. The only way to guarantee a seat is to own 50 percent plus one share. This also guarantees that you will win every seat, so it's really all or nothing.
elected each year at an annual meeting by a vote of holders with the majority of the shares and who have the right to vote
When are directors elected?
Proxy fight
When unhappy stockholders can act to replace existing management. A proxy is the authority to vote someone elses stock.
Computer network of securities dealers.
Which one of the following best describes NASDAQ? Largest U.S. stock market in terms of dollar trading volume. Dealer price at which they will buy is listed as the asked price. Market where the DMM's are located at posts. Computer network of securities dealers. Market with three physical trading floors.
Determining the amount of dividend to be paid per share
Which one of the following rights is never directly granted to all shareholders of a publicly held corporation? Electing the board of directors Having first chance to purchase any new equity shares that may be offered Receiving a distribution of company profits Determining the amount of the dividend to be paid per share Voting either for or against a proposed merger or acquisition
common
Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings? Dual class. Cumulative. Non-cumulative. Preferred. Common.
often callable receive a dividend only get stated value if liquidation occurs carry credit ratings convertible into common stock have obligatory sinking funds
Why does preferred stock look like it could be debt?
1. promised cash flows are not known in advance 2. the life of the investment is forever because the stock has no maturity 3. no easy way to determine the rate of return the market require
Why is common stock more difficult to value in practice than a bond? (three reasons)
specialists post
a fixed place on the exchange floor where the specialist operatesmaintain order and make sure that all buyers and sellers receive a fair price
proxy
a grant of authority by a shareholder allowing another individual to vote his or her shares
straight voting
a procedure in which a shareholder may cast all votes for each member of the board of directors
straight-line voting
a procedure in which a shareholder may cast all votes for each member of the board of directors
cumulative voting
a procedure in which a shareholder may cast all votes for one member of the board of directors
cumulative voting
a procedure in which a shareholder may cast all votes for one member of the board of directors. encourages minority participation because make there vote matter. directors elected all at once
dealer
an agent who buys and sells securities from inventory
OTC Market
an electronic marketplace for stock that is not listed or traded on an organized exchange. buyers and sellers negotiate and agree on the terms of the trade, including the price, quantity, and settlement date, without the involvement of a formal exchange.
common stock
equity without priority for dividends or in bankruptcy
Staggered elections
only a fraction of the dictatorships (often one third) are up for election at a particular time.thus if only two directors are up for election at one time, it will take 1/(2+1) or 33% of the stock plus one share to guarantee a seat
dividends
payments by a company to its shareholders out of its earnings, made in either cash or stock
capital gains
represent the increase in the value of an investment over time
preferred stock
stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting rights
Proxy
the grant of authority by a shareholder to someone else to vote on his/her shares. done for convenience in large corporations
Primary market
the market in which new securities are originally sold to investors (Firm to investor)
Secondary market
the market in which previously issued securities are traded among investors (owner/creditor to owner/creditor)
market depth
the number of shares traded today, followed by the average daily volume over the past three months
PE ratio
the ratio of a stock's price per share to its earnings per share over the previous year.
Preemptive right
the right of stockholders to share proportionally in any new stock sold. must first be offered to existing stockholders before to public. helps give protection of ownership to stockholders
a stock's expected cash dividend divided by its current price
what is the formula for the dividend yield?
to get the best possible price for customer orders
what is the primary responsibility to customers for the commission brokers?