Unit 12 (3)

Question 1

What is a loan and what is ownership?

Answer 1

Debt is a loan. Equity is ownership

Question 2

What of the following is least important to a technical analyst: advance decline, short interest, price to earnings, or trading volume?

Answer 2

Price to earnings is of least interest as it is a fundamental analysis tool. Technicians are mainly interested in a stock charts price and volume over a period of time. High short interest is a bullish indicator

Question 3

Simplest method for evaluating equity

Answer 3

Dividend discount model

Question 4

Dividend discount model

Answer 4

The value of a stock is the present value of expected dividends

Question 5

Dividend growth model

Answer 5

Valuation method that takes into account the dividend per share and the expected growth. Assumes dividends grow at the same rate forever. Will show a higher valuation than discount model. Used with mature and stable industries

Question 6

Which will show a higher valuation, the dividend discount or dividend growth model?

Answer 6

Dividend growth

Question 7

What are the effects of a 100% stock dividend?

Answer 7

Share price is reduced by half and the number of shares double

Question 8

Are preferred dividends returns usually higher than debt securities or lower?

Answer 8

It is likely higher than return by a debt security from the same issuer