Finance 303 CH 7
R = ______
D1/P0 + g
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
The value of a firm is derived using the firm's ______ rate and its _______ rate.
growth; discount
"Inside Quotes" represent the _________ and the ________.
highest bid price; lowest ask price
The price of a share of common stock is equal to the present value of all ______ future dividends.
Expected
P0 = (D1 + P1)/(1 + __)
R
The trading of existing shares occurs in the ______ market.
Secondary
This type of growth describes a company that grows quickly at first, then slower in future years.
Non-constant
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
What is the formula for the present value of a growing perpetuity where C1 is the net cash flow, R is the required return and g is the growth rate?
P = C1/(R-g)
If unpaid preferred dividends must be "caught up" before any common dividends can be paid, they are called _________ dividends.
cumulative
The ______ can be interpreted as the capital gains yield.
growth rate
The fundamental business of the New York Stock Exchange is to attract _______.
order flow
New York Stock Exchange Designated Market Makers (DMMs) were formerly called ________ .
specialists
Which one of the following is true about dividend growth patterns?
Dividends may grow at a constant rate.
The dividend yield is determined by dividing the expected dividend (D1) by:
the current price (P0)
True or false: Daily stock prices can only be found by looking up the stock in newspapers.
False
True or false: A PE ratio that is based on estimated future earnings is called a regressive PE ratio.
False (Forward PE Ratio)
If the growth rate (g) is zero, the capital gains yield is ____.
0 (Zero)
P1 = (__ + P2)/(1 + R)
D2 (little 2)
NASDAQ has which of these features?
-Multiple market maker system. -Computer network of securities dealers.
A benchmark PE ratio can be determined using:
-a company's own historical PEs -the PEs of similar companies
The NYSE differs from the NASDAQ primarily because the NYSE has:
-a face-to-face auction market -a physical location
Preferred stock has preference over common stock in the:
-distribution of corporate assets -payment of dividends
Which of the following represents the valuation of stock using a zero growth model?
Dividend/Discount rate = D/R
The constant-growth model assumes that _________.
dividends change at a constant rate
If a company's growth for Years 1 through 3 is 20% but stabilizes at 5% beginning in Year 4, its growth pattern would be described as _______.
non-constant
What information do we need to determine the value of a stock using the zero growth model?
-Dividend -Discount rate
In the dividend growth model, the expected return for investors comes from which two sources?
-Dividend Yield -Growth rate
Which of the following are cash flows to investors in stocks?
-Dividends
Three special case patterns of dividend growth discussed in the text include:
-non-constant growth -constant growth -zero growth
For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed.
False
True or false: Common stock has a set maturity.
False
Which of the following ratios might be used to estimate the value of a stock?
-The Price/Earnings ratio -The Price/Sales ratio
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.
A person who brings buyers and sellers together is called a(n) ______.
Broker
Initial public offerings of stock occur in the ____ market.
Primary
Shares of stock are first brought to the market and sold to investors in the ________ market.
Primary
Which of the following are reasons that make valuing a share of stock more difficult than valuing a bond?
Stock has no set maturity The required rate of return is unobservable Dividends are unknown and uncertain
Using a benchmark PE ratio against current earnings yields a forecasted price called a _______ price.
Target
True or false: Total return is calculated by adding the dividend yield and the capital gains yield.
True
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 two most important stock markets in the U.S. are the New York Stock Exchange and ______.
NASDAQ
Match the following terms relating to stock valuation.
P1 <--> Price in one year D1 <--> Next expected Dividend R <--> Discount rate P0 <--> Price today D0 <--> Dividend just paid
Earnings over the coming year are expected to be $3 and a benchmark PE of 15 applies to earnings over the previous year. The _____, or forecast, price over the coming year is $45.
Target
Which of the following defines the primary market?
The primary market is where stocks are issued for the first time
