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3-11. BA FM33P > Lesson 4.5 Stocks > Flashcards

Lesson 4.5 Stocks Flashcards

1
Q

is simply a place where financial instruments can be bought or sold.

A

Stock Exchange

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2
Q

A company that has been in existence for sometime, looking to expand

A

Primary Market

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3
Q

A company that has already been listed

A

Secondary Market

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4
Q

long record of earnings and dividend payments

A

Blue Chip

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5
Q

low risk and modest but dependable return

A

Blue Chip

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6
Q

long record of higher than average earnings and retains more for the growth of the business

A

Growth

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7
Q

faster growth than the industry and economy as a whole

A

Growth

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8
Q

higher than average dividend payment ratio

A

Income

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9
Q

movement of earnings and prices in accordance with the business cycle

A

Cyclical

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10
Q

recession-resistant unaffected by downswings in the business cycle

A

Defensive

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11
Q

no record of good earnings

A

Speculative

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12
Q

ownership interest is more than 50%

A

Investment in subsidiary

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13
Q

when the investor has significant influence over the investee

A

Investment in Associate

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14
Q

acquired for the purpose of selling or repurchasing it in the near term

A

Investment security to profit or loss

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15
Q

part of the portfolio of identified financial instruments that are managed together

A

Investment security to profit or loss

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16
Q

debt and equity securities that are actively traded by the entity

A

Investment security to profit or loss

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17
Q

purchased strategically to realize profit from the increase in the value of these instrument

A

Investment in equity through other comprehensive income

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18
Q

Ducks corporation acquired 10,000 Swans Company shares on February 5, 2021 at Php 50 which included Php 10 per share broker’s fees and commissions. The shares were selling at Php 32 per share on December 31, 2021. The investments were designated for trading. How much is the initial carrying value of the investment on the date of acquisition and why?

A

Carrying value stocks held for trading:
= (Php 50 – Php 10)(10,000 shares)
= Php 40 (10,000 shares)
=Php 400,000

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19
Q

increase in the market value of stocks

A

Capital Appreciation

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20
Q

opposite of pay-out ratio.

A

Plowback Ratio

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21
Q

The portion of income that does not get paid out as dividends.

A

Plowback Ratio

22
Q

BT has 20 million ordinary shares, each trading at Php 2.50. BT pays out a total of Php 1m in dividends.

A

Dividend Yield = (Php 1m/20m x Php 2.50) x 100
Dividend Yield = (Php 1m/Php 50m)
X 100
Dividend Yield = 2%

23
Q

A firm is expected to generate Php 1.5 million in operating income and pay Php 250,000 in interest. This will generate Php 12.50 earnings per share. What will happen to the earnings per share if the operating income increases to Php 2 million?

A

Increase in earnings
(Php 1,750,000 – 1,250,000) Php 500,000.00
___________________________________________________________________ _________
Percentage of increase
(500/1250) 40%
___________________________________________________________________ _________
New EPS (12.5 x 1.4) Php 17.50

24
Q

What is the current price of a share of stock when last year’s dividend was Php 3 and the growth rate is at 6%, and the required rate of return of investor’s is at 12%?

A

Amount of Next dividend:
Current year’s dividend = Php 3.00
Growth rate = 1.06
Next dividend = Php 3.18

Price of a share of stock:
Next dividend = Php 3.18
divided by (rr-gr) = .06
Price = Php 53.00

25
Q

is a financial instrument where the value of the instrument is derived from the price of another underlying asset.

A

Derivative

26
Q

where trading takes place directly between two counterparties

A

Over-the-countertrading

27
Q

negotiated and traded privately between parties without the use of an exchange

A

Over-the-countertrading

28
Q

where derivative have standard is traded on anorganized exchange

A

Exchange- traded features

29
Q

a form of derivative. It is an agreement between a buyer and a seller.

A

Future Derivative

30
Q

legally binding obligation between two parties: the buyer agrees to pay a pre-specified amount for the delivery of a particular pre-specified quantity of an asset at a pre-specified future date

A

Futures Contract

31
Q

another form of derivative that gives a buyer the right but not the obligation to buy or sell a specified quantity of an underlying asset at a pre-agreed exercise price on or before a pre-specified future date

A

Option

32
Q

when buyer has the right to buy the asset at the exercise price and the seller is obliged to deliver if the buyer exercises the option

A

Call Option

33
Q

when the buyer has the right to sell the underlying asset at the exercise price and the seller of the option is obliged to take delivery and pay the exercise price

A

Put Option

34
Q

Initial Measurement of Equity Investment
* Investment security to profit or loss (trading)

A
  • acquisition cost
  • Any cost incurred related to the acquisition
35
Q

Initial Measurement of Equity Investment

  • Investment in equity through other comprehensive
A

Measured at historical cost plus any transactions costs

36
Q

distribution of cash

A

Cash Dividends

37
Q

issuing more shares to existing holders

A

Stock Dividends

38
Q

splits into smaller sizes, no change in wealth

A

Stock Dividends

39
Q
  • Paid either quarterly or half-yearly
  • Amount is not fixed
A

Dividends

40
Q

Share prices may fall – investors can lose capital even when dividends are paid

A

Price Risk

41
Q

Shares may be difficult to sell at a reasonable price or sold quickly enough to prevent a loss

A

Liquidity Risk

42
Q

Issuing company may collapse - ordinary share may become worthless

A

Issuer Risk

43
Q

Currency Price movements

A

Foreign exchange risk

44
Q

Initial measurement of investment to profit or loss

A
  1. Acquisition Cost
  2. Any cost incurred related to acquisition
45
Q

Initial measurement of investment to OCI

A
  1. Historical Cost plus any transaction costs
46
Q

Without controlling or significant influence over the investee

A

Other equity securities

47
Q

Distribution of income

A

Dividends

48
Q

Distribution of cash

A

Cash Dividends

49
Q

Issuing more shares to existing holders

A

Stock Dividends

50
Q

Trading Costs

A
  • Brokers commission
  • bid-ask spread
  • price concession

3-11. BA FM33P (6 decks)

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