F11-stock market Flashcards
stock definition
share of stock in firm=owner earn return by dividends or stock price rise lower priority than bondholder=riskier do not mature gives rights
residual claimant
right to claim on assets and income after claimants are payed
right to vote
vote for directors
or certain issues
two different stocks
-common stock vote receive dividends type A and type B -preferred stock fixed dividends prioritized stable price of the stock usually don't vote
four ways to by stock
organized securities exchanges(physical)
over the counter markets(telephone)
electronic communications network
(brings brokerages and traders together so they can trade themselves and bypass middleman)
exchange traded funds(ETF)(basket of securities that form a stock value that is based on net asset value of the stocks)
electronic communication networks
- transparency that shows all unfilled orders
- cost reduction (no middleman and low transaction cost)
- faster execution
- after-hours trading
stock market index
monitors the behavior of a group of stocks
gives some insights when you see average behavior
what does high PE indicates?
expected rise and/or lower risk
information can change expectations
one year investor/one period valuation model
price when you tend to sell stock after one year
rE
equity cost of capital
expected return of investment with same risk as the firms share
dividend yield+capital gain rate
total return of stock
dividends + selling the stock
dividend yield
expected annual dividend/current price of stock
capital gain
+capital gain rate
what investor will earn in stock by selling it
+in percent (capital gain/current price)
generalized dividend valuation model
price of stock is present value of all future dividends
valuation multiplies
ratio of value to some measure of firm’s scale
to compare firms
forward P/E
Trailing earnings (earnings per share past 12 mounts)
