FINC 311 Chapter 7 Connect

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

Using a benchmark PE ratio against current earnings yields a forecasted price called a BLANK price.

target

Reasons that make valuing a share of stock more difficult than valuing a bond?

Stock has no set maturity, dividends are unknown and uncertain, the required rate of return is unobservable

A PE ratio that is based on estimated future earnings is known as a

forward PE ratio

The BLANK can be interpreted as the capital gains yield.

growth rate

A person who brings buyers and sellers together is called a

broker

What describes the primary market?

Where stocks are issued for the first time

The price of a share of common stock is equal to the PV of all BLANK future dividends

expected

Stock price reporting has increasingly moved from traditional print media to the Blank in recent years.

internet

A benchmark PE ratio can be determined by using:

similar companies (industry average or median) or a company's own historical values. forward PE ratio is based on estimated future earnings. Earnings over previous years

A zero-growth stock pays a dividend of $2 per share and has a discount rate of 10%. What will be the stock's price be?

$20

What is the price of a stock at the end of one year (P1), if the dividend for year 2 (D2) is $5, the price for year 2 (P2) is $20, and the discount rate id 10%?

$22.73

What is the total return for a stock that currently sells for $100, is expected to pay a dividend in one year of $2, and has a constant growth rate of 8%?

10% (2/100 + 0.08)

NASDAQ has what features?

Computer network of securities dealers and multiple market maker system

The NYSE differs from the NASDAQ primarily because the NYSE has

a face-to-face auction market and a physical location

Preferred stock has preference over common stock in the

distribution of corporate assets and payment of dividends

The fundamental business of the New York Stock Exchange is to attract:

order flow

Initial public offerings of stock occur in BLANK markets

primary

The dividend yield is determined by dividing the expected dividend (D1) by

the current price (P0)

What information do we need to determine the value of a stock using the zero growth model?

Dividend and discount rate

What is the value of a stock if next year's dividend is $6, the discount rate is 11 percent and the constant rate of growth is 3 percent?

$75

What is the total return for a stock that currently sells for $50, just paid a $1.75 dividend, and has a constant growth rate of 8%?

(1.75x1.08)/50 + .08= 11.78%

If Joan owns 100 shares of ABC company and the company is electing 4 directors, under cumulative voting, Joan would usually have

400

In the dividend growth model, the expected return for investors comes from which two sources?

Growth Rate and dividend yield

Right of common stockholders?

The right to share proportionality in any common dividends paid, the right to share proportionality in any residual value in the event of liquidation, the right to vote on matters of importance

Three special case patterns of dividend growth discussed in the text include?

The dividend has a zero growth rate, the dividend grows at a constant rate, the dividend grows at a non constant rate

Shares of stock are first brought to the market and sold to investors in the

primary market

New York Stock Exchange Designated Market Makers (DMMs) were formerly called:

specialists

If the growth rate (g) is zero, the capital gains yield is

zero

Which of the following represents the valuation of stock using a zero growth model?

Dividend/Discount rate = D/R

Which of the following are cash flows to investors in stocks?

Dividends and Capital gains