Lectire 9 (chapter 9 & 13)

Question 1

Shares?

Answer 1

A unit of equity ownership (Aktieägarandel) in a corporation. Shareholders assume to make positive return because of increasing share price or dividends (utdelning)

Question 2

Shares in public corporations traded in?

Answer 2

Open market, such as NASDAQ OMX

Question 3

Two types of stocks:

Answer 3

Common and preferred

Question 4

Common stockholders?

Answer 4

They vote, receive dividends and hope for the price of their stock to increase

Type A, B and so on based on distribution of dividends and vote rights

Question 5

Preferred stockholders?

Answer 5

Fixed dividend, bc fixed dividend price is relatively stable, no voting unless firm has failed paying dividend, access to assets before common stockholders

Question 6

Limited liability?

Answer 6

Begränsat ansvar. Stockowners have limited liability, which means that they only have liability of the amount they have invested if the firm would not be able to pay the debts.

Question 7

What does stock market / stocks allow?

Answer 7

The separation of ownership and control.

Question 8

Dividend discount model?

Answer 8

Utdelningsdiskonterings-modell (DDM)
P0 = Dt / (1 + rE )t

P < P0 = lönsamt att köpa
P > P0 = lönsamt att sälja

We have to estimate every single future D to calculate P which can be time consuming.

Question 9

Multiyear investments?

Answer 9

Flerårs-investeringar. Samma som diskonteringsmodellen.

Question 10

Constant growth DDM?

Answer 10

Future dividends grow with a constant growth rate. (Growing perpetuity).

ONLY works if q < k. That way, the growth rate is sustainable in long run.
Can be plausible for some companies to have g > k in the short run.

Question 11

Stock prices increase if:

Answer 11

1. Expected dividends in next period increases
2. Growth rate increases
3. rE decreases

Question 12

Limitations of the constant growth DMM:

Answer 12

• P0 is very sensitive to changes in growth rate and rE
• The formula can’t be applicated to non-dividend stocks
• The formula can’t be applicated to firms that have varying growth rates (start-ups)

Question 13

Två sätt som företag kan göra med sin vinst:

Answer 13

1. Ge ut utdelning
2. Återinvestera

(b=1-d)

Question 14

What is dividend payout ratio? d

Answer 14

The fraction of earnings that are paid out as dividends

Question 15

What are retention ratio? b

Answer 15

The part of earnings that stays within the company

b=1-d