Chapter 9

Question 1

type of investment that represents an ownership share in a company

Answer 1

stock

Question 2

models used to estimate intrinsic value

Answer 2

discounted dividend model and corporate valuation model

Question 3

stockholders transfer their right to vote to anotherreron by means of

Answer 3

proxy

Question 4

occurs if earnings are poor and stockholders are disatiisfied

Answer 4

proxy fight

Question 5

a defense strategy usdwd by a target firm to prevent/discourage a potential hostile takeover by an acquiring company

Answer 5

poison pill

Question 6

a contractual clause giving a shareholder the right to buy additional shares in any future issue of the company’s common stock before the shares are available to the general public

Answer 6

preemptive rights

Question 7

types of common stock

Answer 7

1. classified stocks
2. founder’s stock

Question 8

Dt

Answer 8

the dividend a stockholder expects at the end of each year T

Question 9

P0

Answer 9

actual market price of the stock today

Question 10

P hat t

Answer 10

expected price and expected intrinsic value of the stock at the end of each year t

Question 11

g

Answer 11

expected growrh rate in dividends as predicted by investor

Question 12

rs

Answer 12

required, or minimum acceptable, rate of return on the stock considering its riskiness and the returns available on other investments

Question 13

r hat s

Answer 13

expected rate of return

Question 14

r bar s

Answer 14

actual or realized after the fact rate of return

Question 15

D1/P0

Answer 15

dividend yield expected during the coming year

Question 16

capital gains yield

Answer 16

(P1 - P0) / P0

Question 17

expected total return

Answer 17

expected dividend yield plus expected CGY

Question 18

a security that experiences especially robust growth for a time, then eventually reverts back to normal level of growth

Answer 18

supernormal growth stock