Interest Rates, Bonds & Stock Valuation Flashcards
Zero growth
Dividend on the stock is constant and stays the same throughout time
Common stock valuation
P0 = ( D1 + P1 ) / ( 1 + R )
Present value of stock = ( Dividend in 1 year + price of stock in 1 year ) / 1 + required rate of return
Constant growth
Dividend grows at the steady state g
P / E
Ratio of stock’s price per share to its earnings per share (EPS) over the previous year
Common stock
Stock that has no special preference either in receiving dividends or in bankruptcy
Cumulative voting
Shareholder may cast all votes for one member of the board of directors directors. Directors are all elected at once and shareholders can distribute their votes as they want
Straight voting
Procedure in which a shareholder may cast all votes for each member of the board of directors
Staggered elections
Only a fraction of the dictatorships are up for election at a particular time
Proxy voting
Proxy is the grant of authority by a shareholder to someone to vote on his behalf
Preferred stock
Has preference over common stock in the payment of dividends and in the distribution of corporate assets in the event of liquidation
Bond
Written agreement between the borrower and its bondholder
Corporate bonds
Registered form where the registrar of company record ownership of each bond
Bearer form
The bond is issued without record of owners name.
If stolen difficult to recover
Can’t notify bond owner about important updates
Bond ratings
High AAA, AA, Aaa,Aa
Medium A. BBB, Bbb
Low BB, Ba, B, CCC, Caa
Very low CC, Ca, C, D
Government bonds
Issued by government
No risk of default and state income taxes don’t apply, federal do
