Intro to Fin Mod 5 (2)

T/F: Cumulative voting means board members are elected one at a time, with each shareholder casting his or her allotted votes for each seat on the board.

false

One requirement of the dividend growth model is ----

g<R

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

growth; discount

supplemental liquidity providers (SLPs)

investment firms that are active participants in stocks assigned to them. Their job is to make a one-sided market (ie offering to either buy or sell)l they trade purely for their own accounts

One reason corporation use staggered boards is that---

it makes takeover attempts less likely to be successful

NASDAQ has which of these features?

multiple market maker system; computer network of securities dealers

floor brokers

NYSE members who execute customer buy and sell orders

designated market maker (DMM)

NYSE memebers who act as dealers in particular stocks; formerly known as "specialists"

is a company required to pay preferred dividends?

No; the company may defer dividends on preferred stock; however they can not pay dividends to common stockholders until preferred dividends are paid

When valuing a stock, the advantage to considering the stock price in the distant future (rather than a more near-terms price) as a cash flow is that ----

when discounted to present value, a stock price in the distant future is nearly zero

The constant-growth model infers that ________

dividends change at a constant rate

common stock

equity without priority for dividends or in bankruptcy

What is the price in one year for a stock that pays a dividend in one year of $2 with a growth rate of 7% and a required return of 10%?

$108

Scott Corporation does not pay dividends. The PE Ratio for the industry is 13.3 and Scott's EPA were at $1.47. At what price should Scott's stock trade?

$19.55

Dusty Corporation has an issue of preferred stock that pays a dividend of 7% of its state value, which is $100. Which would commonly be used as a name for that preferred stock?

$7 preferred

What is the price of a stock if its dividend a year from now is expected to be $3.20, the discount rate is 9% and the constant rate of growth is 5%?

$80.00

A zero-growth stock pays a dividend of $2 per share and has a discount rate of 10%. What will the stock's price be?

20.00

DMM's post

a fixed place on the exchange floor where the DMM operates

proxy

a grant of authority by a shareholder allowing another individual to vote his or her shares

dividend growth model

a model that determines the current price of a stock as it s dividend next period divided by the discount rate less the dividend growth rate

straight 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 for directors

broker

an agent who arranges security transactions among investors

dealer

an agent who buys and sells securities from inventory; maintains an inventory

The NYSE differs from the NASDAQ primarily because the NYSE has -----

an auction market; specialists and a physical location

member

as of 2006 a member is the owner of a trading license on the NYSE

What are the reasons why it is more difficult to value common stock it is to value bonds?

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

A zero-growth model for stock valuation is distinguished by a ___

constant dividend amount

The _______ can be interpreted as the capital gains yield.

constant growth rate

All else constant, the dividend yield will increase if the stock price ----

decreases

What information do we need to determine the value of stock using the zero-growth model?

discount rate and annual dividend amount

What are 2 expected cash flows to investors in stocks?

dividends and capital gains

In which ways is preferred stock like a bond?

preferred shareholders receive a stated dividend, similar to interest on a bond; some preferred stock has credit ratings, life bonds; preferred stock sometimes has a sinking fund, giving it a set maturity like bonds; preferred shareholders receive a stated value if the firm liquidates, like bondholders

Initial public offerings of stock occur in the ______ market

primary

over-the-counter (OTC) market

securities market in which trading is almost exclusively done through dealers who buy and sell their own inventories

Mota Motors has 8 directors on is board 2 of whom go up for election each year. This is an example of a -----

staggered board

preferred stock

stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting rights

A benchmark PE ratio can be determined using -----

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

What entity declares a dividend?

the board of directors

Matthews Company has 2 classes of common stock and each represents the same proportion of ownership in the company. Class A has 2 votes for each share. Class B has one vote per share. Which class is more valuable?

Class A

What is true about dividend growth patterns?

Dividends may grow at a constant rate

dividend yield

a stock's expected cash dividend divided by its current price

electronic communications network (ECN)

a website that allows investors to trade directly with each other

What are 3 features of common stock?

it has no special preference in receiving dividends; it generally has voting rights to elect directors; it has no special preference in bankruptcy

One common reason for having 2 classes of common stock with different voting right is ----

it is easier for insiders such as founding families to maintain control of the company

What are usually rights of common shareholders?

the right to a proportional share of dividends paid; voting rights

When voting for the board of directors, the number of votes a shareholder is entitled to is generally determined as follows:

one vote her share held

The constant growth formula calculates the stock price:

one year prior (year t) to the first dividend payment (Dt+1)

Fundamentally, the business of the NYSE is to attract and process -----

order flow

Preferred stock has preference over common stock in the------

payment of dividends; distribution of corporate assets

dividends

payments by a corporation to shareholders made in either cash or stock

The dividend yield is determined by dividing the expected dividend (D1) by _____

the current price (P0)

The dividend yield is determined by dividing the expected dividend (D1) by:

the current price (P0)

capital gains yield

the dividend growth rate or the rate at which the value of an investment grows

order flow

the flow of customer orders to buy and sell securities

inside quotes

the highest bid quotes and the lowest ask quotes for a security

primary market

the market in which new securities are originally sold to investors

secondary market

the market in which previously issued securities are traded among investors

Three special case patterns of dividend growth include----

zero growth, constant growth after some length of time, constant growth

WinWin Corporation has 5 board members and each shareholder gets one vote vote per share. The company uses a straight board voting procedure. How does this arrangement affect minority shareholders?

No minority shareholder would have enough votes to win any seat on the board

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

expected

A PE ratio that is based on estimated future earnings is known as a ____ PE ratio

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