Topic 5- Shares

Question 1

Equity is the

Answer 1

residual claim on company’s CF

Question 2

Shares are

Answer 2

ownership of a proportion of a company

Question 3

Dividends are decided by the

Answer 3

board

Question 4

Who’s portion of distributed earnings do dividends represent?

Answer 4

shareholders

Question 5

Share Intrinsic value = Pv (all future payments)?
Share Intrinsic value > Pv (all future payments)?
Share Intrinsic value < Pv (all future payments)

Answer 5

= but not always

Question 6

2 types of shares and which one is more common?

Answer 6

common shares- more common

preference shares

Question 7

3 pts for common shares

Answer 7

• divs not an obligation
• carry voting rights
• board decides

Question 8

3 pts for preference shares

Answer 8

fixed div payments
no voting rights
value = PVperp (P=D/r)

Question 9

Put these steps in order of a secondary market transaction

• share broker then charges a fee
• if a matching order deal is done
• investor submits buy/sell order to share broker’
• broker submits order to NZX on investors behalf

Answer 9

3
4
2
1

Question 10

Buying a share gives

Answer 10

ownership in a corporation

Question 11

Valuing a share depends on

Answer 11

its intrinsic value

Question 12

its intrinsic value is

Answer 12

the fair value of the share

Question 13

the share price is decided when?

Answer 13

throughout tading days as orders are submitted

Question 14

What is special about the intrinsic value of shares formula?

Answer 14

use D1 not D0 for growing perp

Question 15

In a perfect world what would be equal?

Answer 15

market price = intrinsic value

Question 16

if the market value < intrinsic value sell or buy?

Answer 16

buy as it is overvalued in the market

Question 17

shares is a ___ that firms use as another way of sourcing ____

Answer 17

equity

money from investors and in return they get ownership

Question 18

rate of return =

Answer 18

sum of dividend yield + growth rate