FIN 320 Chapter 7

Floor Brokers

MYSE members who execute customer buy and sell orders

Designated market maker (DMM)

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

Dividends

Payments by a corporation to shareholders, made in either cash or stock.

Stated Value

Preferred shares have a stated liquidating value, usually $100 per share.

Dividends payable on preferred stock are either cumulative or noncumulative; most are cumulative. True or False?

True

Some firms have more than one class of common stock. True or False?

True

Dividend Yield

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

Common Stock

Equity without priority for dividends or in bankruptcy.

Supplemental liquidity providers (SLPs)

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.

Constant Growth

The dividend for some company always grows at a steady rate.

Capital Gains Yield

The dividend growth rate, or the rate at which the value of an investment grows.

Order flow

The flow of customer orders to buy and sell securities

Electronic Communications Networks (ECNs)

Websites that allow investors to trade directly with one another.

Supernormal Growth

When a company's growth rate is growing at a phenomenal rate.

Broker

An agent who arranges security transactions among investors.

Dealer

An agent who buys and sells securities from inventory

Member

As of 2006, a member is the owner of a trading license on the NYSE.

Preferred Stock

Differs from common stock in that it has preference over common stock in the payment of dividends and in the distribution of corporation assets in the event of liquidation. There is normally a fixed dividend rate, sometimes without voting rights.

Cumulative Voting

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

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.

Other Rights by Shareholders

1. The right to share proportionally in dividends paid. 2. The right to share proportionally in assets remaining after liabilities have been paid in liquidation. 3. The right to vote on stockholder matters of great importance, such as a merger. Voting is usually done at the annual meeting or a special meeting

DMM's post

A fixed place on the exchange floor where the DMM operates.

Proxy

A grant of authority by a shareholder allowing another individual to vote that shareholder's shares.

Zero Growth

The dividend on a share of preferred stock has zero growth and thus is constant through time.

Inside quotes

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

Nonconstant Growth

The main reason to consider this case is to allow for "supernormal" growth. A simple example for non constant growth is that right now a company is not paying any dividends, but in five years it predicts to pay dividends.

Primary Market

The market in which new securities are originally sold to investors

Secondary Market

The market in which previously issued securities are traded among investors.