finances_lecture 3: "'Valuing stocks"

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Primary Market

A market for the sale of new securities by corporations

Secondary Market

A market in which previously issued securities are traded among investors

Electronic Communication Networks ( ECNs)

A number of computer networks that connect traders with each other

Dividend Discount Model

Computation of today's stock price which states that share value equals the present value of all expected future dividends

From what can be derived Dividend Growth Rate?

Dividend Growth Rate can also be derived from applying the return on equity to the percentage of earnings plowed back into operations.

SPDRs (Standard & Poor's Depository Receipts or "spiders")

ETFs, which are portfolios tracking several Standard & Poor's stock market indexes

Market Value Balance Sheet

Financial statement that uses market value of assets and liabilities

Payout Ratio

Fraction of earnings paid out as dividends

Plowback Ratio

Fraction of earnings retained by the firm

Present Value of Growth Opportunities (PVGO)

Net present value of a firm's future investments.

Book Value

Net worth of the firm according to the balance sheet

Common Stock

Ownership shares in a publicly held corporation

Dividend

Periodic cash distribution from the firm to the shareholders

Exchange-Traded Funds (ETFs)

Portfolios of stocks that can be bought or sold in a single trade

P/E Ratio

Price per share divided by earnings per share

Describe ROE

Return on equity

Sustainable Growth Rate

Steady rate at which a firm can grow: plowback ratio X return on equity.

Expected Return

The expected return on a stock investment plus the expected growth in the dividends. Similar to the capitalization rate.

Expected Return

The percentage yield that an investor forecasts from a specific investment over a set period of time. Sometimes called the market capitalization rate.


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