Stock Valuation Flashcards
How does stock ownership produce cf
Dividends
Capital gains
Different types of stocks
No growth
Constant
Differential
Zero growth definition and fomula
Assumes that dividend remains at the same level forever
P0= D/R
Constant Growth formula and definition
Assumesbthat dividends will grow at a constant rate forever
P0=D1/R-g
PV of growing perpetuity
Differential Growth Formula and definition
Assumes that dividends will grow at different rates in the foreseeable future then will grow at a constant rate thereafter
Where does g (growth rate) come from?
Retention rate * return on retained earnings
How is the disco rate broken up
Dividend yield
Growth rate (in dividends)
Estimation is required
Market order
Market Orders:
Amarket orderis an instruction to buy or sell a securityimmediatelyat thecurrent market price.When you place a market order, the broker executes the trade as quickly as possible, regardless of the exact price.
ticker symbol and the quantity of shares you want to buy or sell.These orders are executed immediately at the best available price in the market.For amarket buy order, it will be executed at the lowest ask price (the price at which sellers are willing to sell).For amarket sell order, it will be executed at the highest bid price (the price at which buyers are willing to buy).
What is a ticker symbol
Atickeris a shorthand symbol used to identify a specific publicly traded company’s stock on a stock exchange. It typically consists of a combination of letters that usually represent the company’s name or abbreviation.Investors use stock tickers to quickly track and monitor stock prices and performance in real-time1.
Thequantity traded(volume) for each transaction.Thecurrent priceof the stock.Agreen “up” arrowif the price is higher than the previous day’s closing value.Ared “down” arrowif the price is lower.Thenet price change(either as a dollar amount or percentage) from the previous day’s close
What is a broker?
Brokers:
A broker executes orders on behalf of clients.Brokers can be either:Full-service brokers: They provide personalized investment recommendations, retirement planning, estate planning, and other services.
Discount brokers: They focus solely on executing trades.Investors typically engage brokers to buy and sell securities.Brokers act as agents for investors, facilitating transactions.When you pay a commission to make a trade, you’re paying it to a broker.
Broker:
You contact abrokerage firm(such as Charles Schwab, E*TRADE, or Fidelity).The broker acts as an intermediary between you (the investor) and the stock market.You provide instructions to the broker: “Buy 100 shares of XYZ Corp.”The broker executes the trade on your behalf by finding a seller in the market.You pay a commission fee to the broker for their services.
What is a dealer?
Dealers:
Dealers buy and sell securities for their own account.They may operate through a broker or directly.Some dealers, known asprimary dealers, also facilitate trades on behalf of the U.S. Federal Reserve to implement monetary policy.Dealers act as principals, trading for themselves rather than on behalf of clients12.For example, if a dealer buys a security, they hold it in their inventory until they find a buyer.Dealers play a crucial role in market liquidity by providing liquidity to investors.
Dealer:
Dealers are often financial institutions (such as investment banks or market makers).A dealer may hold an inventory of XYZ Corp. shares.Suppose the dealer has 200 shares of XYZ Corp. in their inventory.You place an order to buy 100 shares.The dealer sells you 100 shares directly from their inventory.Unlike brokers, dealers trade for their own account and profit from the spread (the difference between the buying and selling price).
