Exam 3 (Chapter 7)
type of growth that describes a company that grows quickly at first, then slower in the future
non-constant
know cumulative vs straight voting
ok
dividends are taxed as _____ _____ for individuals
ordinary income
examples of secondary markets in the U.S.
The Chicago Stock Exchange NASDAQ NYSE
a benchmark PE ratio can be determined using
a company's own historical PEs the PEs of similar companies
T/F preferred stock carries voting rights
false
a PE ratio that is based on estimated future earnings is known as a _____ PE ratio
forward
"inside quotes" represent the _____ bid price and the ______ ask price
highest, lowest
dealer
maintains an inventory ready to buy or sell at anytime (like a used car dealer)
features of NASDAQ
multiple market market system computer network of securities dealers
when are dividends a liability of the firm?
when they are declared by the board of directors
what information is needed to determine the value of a stock using the zero growth method?
dividend discount rate
supernormal growth
dividend growth is not consistent initially, but settles down to constant growth eventually
constant dividend growth
firm will increase the dividend by a constant percent every period
constant dividend/zero growth
firm will pay a constant dividend forever like preferred stock price is computed using the perpetuity formula
features of preferred stock
must be paid before dividends can be paid to common stockholders not a liability of the firm can be deferred indefinitely cumulative dividends -missed preferred dividends have to be paid before common dividends can be paid
dividend yield definition
next year's expected cash dividend divided by the current market price per share
the price of the stock is just the ____ _____ of all expected future dividends
present value
zero growth formula
price = D/R also example 7-13
some reasons valuing a share of stock is more difficult than valuing a bond?
require rate of return is unobservable stock has not set maturity dividends are unknown and uncertain
using a benchmark PE ratio against current earnings yields a forecasted price called a ______ price
target
for stocks that don't pay dividends (or have erratic growth rates), we can value them using what?
the price-earnings ratio (PE) and/or the price-sales ratio
features of common stock
voting rights share proportionally in declared dividends share proportionally in remaining assets during liquidation preemptive right -right of first refusal to buy new stock issue to maintain proportional ownership if desired
if the growth rate is zero, the capital gains yield is _____
zero
know dmm slide 7-45
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3 levels of information NASDAQ
1. median quotes, registered representatives 2. view quotes, brokers and dealers 3. view and update quotes, dealers only
dividends received by corporations have a minimum ____ exclusion from taxable income
70%
constant growth stock equation
D = D(1+g)
_____ has a large portion of technology stocks
NASDAQ
DMMs fall under
NYSE
DMM
NYSE member who functions as a dealer for a limited number of securities
a firm can go bankrupt for not ______ dividends
declaring
all else held constant, the dividend yield will increase if the stock price _____
decrease
dividends are/are not tax deductible for firms
are not
Operational goal of NYSE
attract flow order
price-earnings ratio formula
benchmark PE ratio x earnings per share
price-sales ratio formula
benchmark price-sales ratio x sales per share
broker
brings buyers and seller together (like a real estate broker)
money from selling stocks
capital gains
two ways you can receive cash from stocks
company pays dividends sell shares to another investor or back to the company
NASDAQ has a _____ based quotation system
computer
dividend growth model definition
computes the present value of a stock by dividing next year's annual dividend amount by the difference between the discount rate and the rate of change in the annual dividend amount?