Finance Chapter 8

special cases, we can come up with a value for the stock

1. the dividend has a zero growth rate, 2 the dividend grows at a constant rate and 3 the dividend grows at a constant rate after some length of time.

NYSE operations

-Operational goal = attract order flow -NYSE DMMs: --Assigned broker/dealer --Each stock has one assigned DMM --All trading in that stock occurs at the "DMM's post" -Trading takes place between customer orders placed with the DMMs and "the crowd" -"Crowd" = Floor brokers and SLPs

electronic communications network

A website that allows investors to trade directly with each other.

supplemental liquidity providers

Investment firms that are active participants in stocks assigned to them. Their job is to make a one-sided market (i.e., offering to either buy or sell). They trade purely for their own accounts

designated market makers

NYSE members who act as dealers in particular stocks. Formerly known as "specialists"

Floor brokers

NYSE members who execute customer buy and sell orders

over-the-counter market (OTC)

Securities market in which trading is almost exclusively done through dealers who buy and sell for their own inventories.

inside quotes

The highest bid quotes and the lowest ask quotes for a security.

proxy

a grant of authority by a shareholder allowing another individual to vote his or her shares

dividend growth model

a model that determines the current price of a stock as its dividend next period divided by the discount rate less the dividend growth rate

straight voting

a procedure in which a shareholder may cast all votes for each member of the board of directors

cumulative voting

a procedure in which a shareholder may cast all votes for one member of the board of directors

dividend yield

a stock's expected cash dividend divided by its current price

broker

brings buyers and sellers together but does not maintain an inventory.

common stock

equity without priority for dividends or in bankruptcy

dealer

maintains an inventory and stands ready to buy and sell at any ti,e.

dividends

payments by a corporation to shareholders, made in either cash or stock. are paid out of the corporations aftertax profuts

floor activity

receiving customer orders, walking out to DMM's post where the orders are executed, and returning to confirm order executions and receive new customer orders.

preferred stock

stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting rights. either cumulative or noncumulative

preemptive right

stockholders sometimes sometimes have the right to share proportionally in any new stock sold, a company that wishes to sell stock must first offer it to the existing stockholders before offering it to the general public

capital gains yield

the rate at which the value of the investment grows

what would happen if growth is bigger than rate

the stock price is infinently large , the present value of the dividends keeps getting bigger and bigger

shareholder rights

vote for directors, to share proportionally in dividends paid, share proportionally in assets remaining after liabilities have been paid in a liquidation, right to vote on stockholder matters of great importance, such as a merger.