chapter 8 Flashcards
According to the dividend-discount model, the “fundamental” price of a stock equals its current dividend _______ the interest rate, ________ the dividend growth rate.
divided by, minus
Bondholders receive fixed nominal payments. Stockholders
are paid last and their returns are volatile.
With stocks, payments or distributions made to the owners of a company when it earns a profit are called _____.
dividends
To modify the dividend-discount model to include risk, a change needs to be made to the interest rate when calculating present value. Which of the following is it?
It must include the risk-free return and a risk premium.
The present value of the sum of its dividends plus the present value of its future price determines
stock price
What is the basis for the theory of efficient markets?
Prices of all financial instruments reflect all available information.
According to the dividend-discount model, stock prices should be high when
dividend growth is rapid
difference between bonds and stocks
Bondholders are paid before stockholders.
Stockholders’ returns are more volatile than bondholders’ returns.
According to the dividend-discount model with risk included, stock prices will be high when
the risk-free rate is low.
According to the theory of efficient markets
stock price movements are unpredictable
The stock market
provides a method for people to know the market value of firms.
the stock market
guides the allocation of resources to firms with higher market values.
An index number is valuable because
it provides a meaningful measurement scale to calculate percentage changes.
The Dow Jones Industrial Average gives greater weight to shares with _____ prices.
higher
