10/11. STOCK MARKETS

Question 1

share of stock represents

Answer 1

ownership
right to vote on directors and certain issues

Question 2

2 types of stock

Answer 2

1. common stock = ownership, voting right, receives dividends
2. preferred stock = more similar to a bond, no voting right, receives a fixed dividend

Question 3

return on stock market

Answer 3

1. dividend yield: annual dividend/stock price
2. capital gains/losses: share price increases/decreases

• Low-dividend firms must have high-growth prospects (Tesla)
• More mature, low-growth firms pay high dividends (Ford)

Question 4

market capitalization

Answer 4

n of stocks issued*share price

Question 5

valuing stocks

Answer 5

1. determine cash flows
2. discount them to the present

Question 6

valuing stocks methods

Answer 6

1. one-period valuation model
2. generalized dividend valuation model
3. Gordon growth model

Question 7

1. One-period valuation model

Question 8

2. Generalized dividend valuation model

Question 9

3. Gordon growth model