Topic 7- Stock Valuation: Understanding Equity

Question 1

Stock Valuation is also known as

Answer 1

Equity Valuation

Question 2

Equity

Answer 2

Equity=Stock=Ownership in a firm

Question 3

Residual Claim

Answer 3

The right of a stockholder to the earnings and assets of company after the company has paid all prior obligations

Question 4

Equity

Answer 4

Equity=Stock=Ownership in a Firm

Question 5

Stock

Answer 5

Ownership in an asset such as a company; also called equity

Question 6

Equity

Answer 6

Ownership in an asset such as a company; also called Stock

Question 7

Residual Claim

Answer 7

the right of a stockholder to the earnings and assets of a company after the company has paid all prior obligations

Question 8

Stockholders have a residual _____ claim on firm earnings and assets.

Answer 8

Residual-

First, stockholders have a residual claim on the earnings and the assets of the company. This means that each year after the company pays for its operations and pays its creditors, any residual or remaining earnings belong to the shareholders

Question 9

A right that common stock shareholders have is the right to vote on company management (T/F)

Answer 9

TRUE

Another right that accompanies some types of stock is the right to vote on company management and policies in regular stockholder meetings.

Question 10

Knowing about equity is only important if you want to become a Wall Street Banker (T/F)

Answer 10

FALSE

Question 11

Equity often is a big part of individual investment portfolios. (T/F)

Answer 11

TRUE

Equity (usually common stock) will likely constitute a large portion of an individual’s investment portfolio and retirement fund. In order to best choose and understand the changes in individual stocks or funds, investors need to understand the sources of stock value.

Question 12

Two main types of stock

Answer 12

common stock & preferred stock

Question 13

Common Stock

Answer 13

A variable-return security that represents equity in a firm and confers the right to vote at shareholder meetings.

Question 14

Preferred Stock

Answer 14

A hybrid security that has no fixed maturity, has fixed payments, and does not confer voting rights on bondholders.

Question 15

Variable-Return Securities

Answer 15

(broader term for equity in general)

Securities that provide investors with a rate of return determined by market forces and management discretion

Question 16

What was the new countries first stock market called?

Answer 16

The Buttonwood Agreement (eventually became the New York Stock Exchange)

Question 17

Dividends in Arrears

Answer 17

A characteristic of preferred stock where common stock dividends cannot be paid until the preferred dividends are paid.

Question 18

Angel investors

Answer 18

an individual who invests his or her own money in start-up firms in exchange for equity in those firms

Question 19

Venture capitalists

Answer 19

A firm that invests money in start-up firms with high growth potential in exchange for equity in those firms.

Question 20

Accredited investors

Answer 20

A wealthy investor who meets the actual net worth and income qualifications set by the SEC and its given special status conferring additional investment opportunities

Question 21

Which of the following securities represents ownership in the firm?

Answer 21

Preferred stock