chapter 8 in book review
a zero-growth model for stock valuation is distinguished by a
constant dividend amount
a PE ratio that is based on estimated future earnings is known as a ___ PE ratio
forward
An asset's value is determined by the present value of its ___ cash flows.
future
one requirement of the dividend growth model is
g<R
a benchmark PE ratio can be determined using
-PEs of similar companies -companys own historical PEs
NASDAQ has which features?
-computer netword of securities dealers -multiple market maker system
what information do we need to determind the value of stock using the zero-growth model?
-discount rate -annual dividend amount
what are expected cash flows to investors in stocks?
-dividends -capital gains
what are reasons why it is more difficult to vlaue common stock than it is to value bonds
-life of common stock is essentially forever -common stock cash flows are not known in advance -rate of return required by the market is not easily observed
what are some feature of common stock
-no special preference in bankruptcy -generally has voting rights -has no special preference in receiving dividends
preferred stock has preference over common stock in the
-payment of dividends -distribution of corporate assets
the NYSE differs from the NASDAQ primarily becuase the NYSE has
-physical location -auction market -specialists
what is usually a right of common shareholders?
-voting rights -right to a proportional share of dividends paid
two most important stock markets in the US are the new york stocl exchange and
NASDAQ
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 shareholders until preferred dividends are paid.
P0
Price today
Is this a way preferred stock is like a bond? Preferred shareholders receieve a stated value if the firm liquidates, like bondholders.
Yes
Is this a way preferred stock is like a bond? Preferred shareholders receive a stated dividend, similar to interest on a bond.
Yes
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
decreases
R
discount rate
D1
dividend in one year
what is true about dividend growth patterns?
dividends may grow at a constant rate
valuation of stock using a zero-growth model
dividends/discount rate
The price of a share of common stock is equal to the present value of all ______ future dividends.
expected
for investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed T/F
false
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
in the dividend discount model, the expected return for investors come from which two sources?
growth rate, dividend yield
The value of a firm is a function of its ___ rate and its ___ rate.
growth; discount
Stock price reporting has increasingly moved from traditional print media to the _______ in recent years.
internet
One common reason for having two classes of common stock with different voting rights is:
it is easier for insiders such as founding families to mmaintain control of the copany
one reason corp. use staggered boards is that
it makes takeover attempts less likely to be successful
most voting in large corporations is done by proxy because:
most small shareholders do not attend the annual meeting
what occurs in the primary market?
newly-issued stocks are initially sold
Is this a way preferred stock is like a bond? preferred stock dividends are tax deductible for the issuer, like interest on bonds
no
WinWin Corporation has five board members, and each shareholder gets one 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
When voting for the board of directors, the number of votes a shareholder is entitled to is generally determined as follows:
one vote per share held
the constant growth formula calculates the stock price:
one year prior(year t) to the frst dividend payment(Dt+1)
Fundamentally, the business of the NYSE is to attract and process ____.
order flow
P1
price in one year
the NYSE member who acts as a dealer in a small number of securities is a
specialist
The goal of many successful organizations is a ______ rate of growth in dividends.
steady
what entity declares a dividend
the board of directors
the dividend yield is determined by dividing the expected dividend D1 by
the current price P0
When the stock being valued does not pay dividends,
the dividend growth model can still be used based on the future dividends
t/f it cna be advantageous to have a staggered board because it provides "institutional memory"
true
Is this a way preferred stock is like a bond? preferred stock sometimes has a sinking fund, giving it a set maturity like bonds.
yes
Is this a way preferred stock is like a bond? some preferred stock has credit rating, like bonds.
yes
if the growth rate (g) is zero, the capital gains yield is
zero
three special case patterns of dividend growth include
zero growth, constant growth, and non-constant growth