FIN ch 8

Preferred stock has preference over common stock in the _____.

- payment of dividends - distribution of corporate

For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed.

False

A stock with dividend priority over common stock is called a ___ stock

preferred

A share of common stock can be valued by determining the ____ value of its future cash flows.

present

When a company is new and does not pay dividends and is not yet profitable, then you may use a benchmark price- ____ ratio to estimate the stock price.

sales

When assuming nonconstant growth in dividends, to avoid the problem of having to forecast and discount an infinite number of dividends, we must require that the dividends _____.

start growing at a constant rate sometime in the future

The main reason for considering nonconstant growth in dividends is to allow for _____ growth rates over _____.

supernormal; some finite length of time

Using the dividend growth model requires that the growth rate be _____ the discount rate.

smaller than

Someone who maintains an inventory of stocks and buys and sells those stocks is known as a ____.

dealer

The NYSE differs from the Nasdaq primarily because the NYSE has _____.

- an auction market - a physical location - specialists

The price of a share of common stock is equal to the present value of all expected future ____

Dividends

The price of a share of common stock is equal to the present value of all ____ future dividends

Expected

The value of a firm is the function of its ___ rate and its ___ rate

Growth; discount

A share of common stock is ___ difficult to value in practice than a bond.

More

Which of the following are reasons why it is more difficult to value common stock than it is to value bonds?

-The rate of return required by the market is not easily observed -Common stock cash flows are not. known in advance -The life of a common stock is essentially forever

A benchmark PE ratio can be determined using:

-a company's own historical PEs -the PEs of similar companies

Preferred stock has preference over common stock in the _____.

-distribution of corporate assets -payment of dividends