Shares Flashcards
What is an equity market?
A market where shares of companies are issued and traded, either through exchanges (auction market) or over-the-counter (dealer markets) aka stock market.
What are some reasons for listing securities?
Raise capital from a larger investor pool.
Easier to buy and sell securities.
Enables initial investors to realize their investment.
What is an IPO?
A type of share issuance. The first time a private company offers its shares to the public on the stock exchange.
What are 2 different types of IPOs?
Tender offer
Fixed price offer
What are the stages of an IPO?
Appoint lead manager
Lead manager sets up a syndicate
Arrange underwriting
Value the shares
Issue prospectus and invite offers
Allocate shares
What are some challenges of valuing shares?
Cash flows are uncertain.
Life of investment is uncertain because an equity can theoretically last forever.
Difficult to measure the expected return markets expect.
Share prices are volatile.
What are the advantages of the dividend valuation model?
Useful for valuing stable-growth, dividend-paying companies.
Simple to understand.
What are the disadvantages of the dividend valuation model?
Values are sensitive to the assumed growth rate and required rate of return.
Not applicable for non-dividend-paying stocks and unstable-growth, dividend-paying stocks.
What are the components of the investor rate of return?
Dividend yield - An equity’s expected cash dividend divided by its current price.
Capital gains yield - the rate at which the value of an investment and dividends are expected to grow.
