BCOR 340 LS Activity

A benchmark PE ratio can be determined using:

The PEs of similar companies A company's own historical PEs

What is the price of a stock at the end of one year (P1) if the dividend for year 2 (D2) is $5, the price for year 2 (P2) is $20, and the discount rate is 10%?

$22.73

NASDAQ has which of these features?

Computer network of securities dealers Multiple market maker system

If unpaid preferred dividends must be "caught up" before any common dividends can be paid, they are called __________ dividends

Cumulative

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

forward

Stock price reporting has increasingly moved from traditional print media to the ________ in recent years

internet

The fundamental business of the NY stock exchange is to attract

order flow

Using a benchmark PE ratio against current earnings yields a forecasted price called a _________ price

target

What is the value of a stock if next year's dividend is $6, the discount rate is 11% and the constant rate of growth is 3%?

$6 / (.11 - .03) = $75

Which of the following represents the valuation of stock using zero growth model?

Dividend/Discount rate = D/R

Which of the following are rights of common stock holders?

The right to share proportionally in any residual value in the event of liquidation The right to share proportionally in any common dividends paid The right to vote on matters of importance

If the growth rate (g) is zero, the capital gains yield is ________.

Zero

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

$20

Three special case patterns of dividend growth discussed in the text include:

1. Zero Growth 2. Constant Growth 3. Non-constant Growth

What is the total return for a stock that currently sells for $100, is expected to pay a dividend in one year of $2, and has a constant growth rate of 8%?

10%

If joan owns 100 shares of ABC company and the company is electing 4 directors, under cumulative voting Joan would usually have _________ votes.

400

Which of the following are cash flows to investors in stocks?

Capital gains Dividends

"inside quotes" represent the __________ and the _________.

Highest bid price, lowest ask price

What is the formula for the PV of a growing perpetuity where C1 is the new cash flow, R is the required return and g is the growth rate?

P = C1 / (R-g)

Match the following terms related to stock variation: P1 D1 R P0 D0

P1 = Price in one year D1 = Next expected dividend R = Discount Rate P0 = Price today D0 = Dividend just paid

Preferred stock has preference over common stock in the:

Payment of dividends Distribution of corporate assets

Shares of stock are first brought to the market and sold to investors in the ____________ market

Primary

What is the total reutrn for a stock that currently sells for $50, just paid a $1.75 dividend, and has a constant growth rate of 8%?

R = ($1.75 x (1.08) / 50) +.08 = 11.78%

What is the total return for a stock that currently sells for $50, just paid a $1.75 dividend, and has a constant growth rate of 8%.

R = (1.75 x (1.08) / 50) + .08 = 11.78

A person who brings buyers and sellers together is called a __________

broker

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

dealer

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

Decrease - if a company pays 2.5 dividend and the stock price is $50 - the Dividend yield is 2.5/50 = 5%. But, if the stock price is $60 then the dividend yield is 2.5/60 = 4.17%. alternatively, if the stock price drops to 40 the dividend yield increases to 2.5/40 = 6.25%

Websits that allow investors to trade directly with one another are termed _________.

ECNs

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

False

In the dividend discount model, the expected return for investors comes from which two sources?

Growth Rate & Divident yeild R = Div/P0 + g

The value of a firm is derived using the firm's _________ rate and its ___________ rate

Growth; Discount

__________________________ are the two most important stock markets in the US

New york stock exchange Nasdaq

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

Non-Constant

NY stock exchange designated market makers (DMMs) were formally called ___________.

Specialists

Which of the follow are reasons that make valuing a share of stock more difficult than valuing a bond?

Stock has no set maturity Dividends are unknown and uncertain The required rate of return is unobservable