Chapter 13 - Equity Valuation

Question 0

Div1 / P0 =

Answer 0

dividend yield

Question 1

_______ is the present value of shares where all cash payments, dividends and final sale of stock, are discounted at ‘k’.

Answer 1

Intrinsic Value

Question 2

(P1 - P0)/ P0 =

Answer 2

Expected Capital Appreciation

Question 3

Div yield + Capital Appreciation % =

Answer 3

Total Return (Expected Return ‘r’) - Also called

Market Capitalization Rate

Question 4

______ is when value of a stock equals PV of all expected future dividends and expected stock price at the end

Answer 4

Dividend Discount Model (DDM)

Question 5

P0 = Div1 (or EPS1)/ r is known as _____?

when company pays out all earnings as dividends and thus no growth opportunities

Answer 5

perpetuity

Question 6

P0 = Div1 / (k-g) is known as _____

Answer 6

Constant Growth Model or Gordon Growth Model

Question 7

D0 is also ______ dividends paid

Answer 7

yesterday’s or just paid

Question 8

Net Income / # of shares outstanding =

Answer 8

EPS (earnings per share)

Question 9

with plowback or growth stock:

‘g’ or growth rate =

Answer 9

ROE x plowback (b) ratio

Question 10

E(r) = [E(D1) + (E(P1) - P0)] / P0

Answer 10

Expected HPR (holding-period return)

Question 11

_______ may be viewed as providing an estimate of the rate of return an investor can reasonably expect to earn on a security given its risk as measured by beta.

Answer 11

CAPM

Question 12

When rate of return the investor expects (Expected HPR) exceeds the required rate of return (k) on a stock, investor will want to ______ of stock. (p.408)

Answer 12

buy more

Question 13

PVGO = P0 - (E1/k)

where P0 is the price with growth

E1/k is price without growth factor

Answer 13

p. 414