FIN 101 CHP 8

How many main types of stock are there and what are they called?

2; Preferred and common

What is a dividend?

A return of profits to shareholders

What is common stock?

An investment security which represents ownership in a company

What is preferred stock?

An investment security which, depending on the issuing company, can represent ownership in a corporation along with being a debt instrument of the company

Which kind of business that facilitates stock trades is the most common?

Broker-Dealer

How do stock market brokers make a profit?

Commissions on trades

What is the title of the individual who manages the physical auction for a specific stock at the New York Stock Exchange?

Designated Market Maker

What type of auction system does the New York Stock Exchange operate?

Hybrid auction

The NYSE is owned by which holding company?

Intercontinental Exchange

Which of the following statements is true of two-stage stock valuation methods?

It assumes the investor will sell the share as part of the calculation.

Dealers in the stock market are also sometimes known by what other nickname?

Market Makers

In year one, your stock earnings rate was 2%. In year two it was 5%, and in year three it was only 1%. What is this an example of?

Non-constant growth.

What kind of stocks are traded on the New York Stock Exchange?

Publicly-traded companies

Why might the New York Stock Exchange implement a trading curb?

Stock value dropped 25%

Why would the stock inventory go down if a dealer received a buy order from a client?

The dealer would be selling shares from the inventory to the client.

Tom is considering purchasing stock that historically paid dividends of $0.25 the first time, $0.50 the second, and $0.75 the third. Why should Tom use the constant-growth valuation method?

The method assumes the dividend rate will increase at the same rate for each payment.

Which of the following is true of stock market brokers?

They execute trades only on the order of the client.

What is the purpose of stock valuation?

To determine the correct price for a share of stock.

If ABC Company issues dividends payable to common stock holders for the first quarter of 2014, must the company first pay dividends owed to preferred stockholders?

Yes, preferred stock dividends must typically be paid prior to common stock holders receiving dividends.

If 1,000 shares of stock of XYZ Company are issued, and you purchase 300 shares at $30.00 per share, do you have ownership in the corporation, and if so, how much?

Yes; 30%

Which of the following growth valuation methods assumes no change in the dividend rate?

Zero-growth