Equity Investments Flashcards
Price-weighted index
Sum of(StockPrices)/adjusted divisor
Value weighted index
(Sum of((current prices)#shares)/sum of((base year prices)#baseyearshares))*base value
Quote driven market
Investors trade with dealers
Order driven market
Buyers and sellers matched by rules
Brokered markets
Brokers find counterparties
Industry life cycle - embryonic
Slow growth; high prices; large investments needed; high risk of failure
Industry life cycle - Growth
Rapid growth; falling prices; limited competition; increasing profitability
Industry life cycle - shakeout
Slower growth; intense competition; declining profitability; cost cutting; weaker firms fail or merge
Industry life cycle - Mature
Slow growth; consolidation; stable prices; high barriers to entry
Margin call price
P0(1-initial margin%)/(1-maintenance margin)
Industry life cycle - Decline
Negative growth; declining prices; consolidation
Five Competitive forces
Rivalry existing competition; Threat of new entrants; threat of substitute; Bargaining power of buyers; Bargaining power of suppliers.
One-period valuation model
V0=D1/(1+Ke) + P1/(1+Ke)
DDM Multi-stage
V0=D1/(1+Ke) + … + Dn/(1+Ke)^n + Pn/(1+Ke)^n
Or
Pn=Dn+1/(Ke-gc)
DDM Constant growth model
V0=D0(1+gc)/(Ke-c)=D1/(Ke-gc)
Earning multiplier model
P0/E1= (D1/E1)/(k-g) = Payout ratio/(k-g)
Peer group construction process:
that starts with an existing commercially classified system that is then narrowed
CONSUMER DISCRETIONARY
businesses that sell nonessential goods and services.
CONSUMER STAPLES
Essential products such as food, beverages, tobacco and household items.
Participating preference shares
pay extra dividends if the firm’s profin exceed a predetermined level
Cumulative preferred shares
must be paid any omitted dividends from prior periods before the firm may pay dividends to common shareholders
