Week 3

Question 1

Primary market

Answer 1

Selling of shares

Question 2

Secondary market

Answer 2

Stock exchange

Question 3

Market order

Answer 3

Sell stock at best available price

Question 4

Limit order

Answer 4

Price limit for what someone is willing to buy

Question 5

P/E ratio

Answer 5

ratio of stock price to earnings per share (EPS)

Question 6

Dividend yield

Answer 6

Ratio of dividend to price

Question 7

Exchange-traded funds (ETF)

Answer 7

Portfolios of stocks that can be bought/ sold in one trade

Question 8

Going-concern value

Answer 8

Collection of assets organised into a healthy operating business

Question 9

Liquidation value

Answer 9

What investors get when a failed company is shut down and assets are sold off

Question 10

Comparables

Answer 10

Sample of similar firm

Question 11

Market-book ratio

Answer 11

Price divided by book value per share

Question 12

DCF model

Answer 12

Connecting stock prices to cash flow that stockholders receive from the company

Question 13

Market capitalization rate/ cost of equity capital

Answer 13

Opportunity cost of capital

Question 14

ROE

Answer 14

Return To Equity, ratio of earnings per share to book equity per share

Question 15

Current yield

Answer 15

Annual interest on a bond / market price

Question 16

Discount rate

Answer 16

Opportunity cost of investing in project rather than financial market

Question 17

Payback period

Answer 17

Number of years it takes before cumulative cash flow equals initial investment

Question 18

Payback rule

Answer 18

Accept project if packback period is smaller than specific cutoff period

Question 19

Internal rate of return

Answer 19

Discount rate that makes NPV=0

Question 20

IRR rule

Answer 20

Accept investment if opportunity cost of capital is less than internal rate of return