Exam 3 (Chapter 7)

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type of growth that describes a company that grows quickly at first, then slower in the future

non-constant

know cumulative vs straight voting

ok

dividends are taxed as _____ _____ for individuals

ordinary income

examples of secondary markets in the U.S.

The Chicago Stock Exchange NASDAQ NYSE

a benchmark PE ratio can be determined using

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

T/F preferred stock carries voting rights

false

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

forward

"inside quotes" represent the _____ bid price and the ______ ask price

highest, lowest

dealer

maintains an inventory ready to buy or sell at anytime (like a used car dealer)

features of NASDAQ

multiple market market system computer network of securities dealers

when are dividends a liability of the firm?

when they are declared by the board of directors

what information is needed to determine the value of a stock using the zero growth method?

dividend discount rate

supernormal growth

dividend growth is not consistent initially, but settles down to constant growth eventually

constant dividend growth

firm will increase the dividend by a constant percent every period

constant dividend/zero growth

firm will pay a constant dividend forever like preferred stock price is computed using the perpetuity formula

features of preferred stock

must be paid before dividends can be paid to common stockholders not a liability of the firm can be deferred indefinitely cumulative dividends -missed preferred dividends have to be paid before common dividends can be paid

dividend yield definition

next year's expected cash dividend divided by the current market price per share

the price of the stock is just the ____ _____ of all expected future dividends

present value

zero growth formula

price = D/R also example 7-13

some reasons valuing a share of stock is more difficult than valuing a bond?

require rate of return is unobservable stock has not set maturity dividends are unknown and uncertain

using a benchmark PE ratio against current earnings yields a forecasted price called a ______ price

target

for stocks that don't pay dividends (or have erratic growth rates), we can value them using what?

the price-earnings ratio (PE) and/or the price-sales ratio

features of common stock

voting rights share proportionally in declared dividends share proportionally in remaining assets during liquidation preemptive right -right of first refusal to buy new stock issue to maintain proportional ownership if desired

if the growth rate is zero, the capital gains yield is _____

zero

know dmm slide 7-45

...

3 levels of information NASDAQ

1. median quotes, registered representatives 2. view quotes, brokers and dealers 3. view and update quotes, dealers only

dividends received by corporations have a minimum ____ exclusion from taxable income

70%

constant growth stock equation

D = D(1+g)

_____ has a large portion of technology stocks

NASDAQ

DMMs fall under

NYSE

DMM

NYSE member who functions as a dealer for a limited number of securities

a firm can go bankrupt for not ______ dividends

declaring

all else held constant, the dividend yield will increase if the stock price _____

decrease

dividends are/are not tax deductible for firms

are not

Operational goal of NYSE

attract flow order

price-earnings ratio formula

benchmark PE ratio x earnings per share

price-sales ratio formula

benchmark price-sales ratio x sales per share

broker

brings buyers and seller together (like a real estate broker)

money from selling stocks

capital gains

two ways you can receive cash from stocks

company pays dividends sell shares to another investor or back to the company

NASDAQ has a _____ based quotation system

computer

dividend growth model definition

computes the present value of a stock by dividing next year's annual dividend amount by the difference between the discount rate and the rate of change in the annual dividend amount?


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