Financial Valuations and Transaction Controls

Question 1

Dividend Discount Model

Answer 1

the value of a share of stock is found by taking the dividend per share and dividing it by the discount rate less the dividend growth rate

Question 2

Internal Growth rate

Answer 2

ROE x Retention Rate

Retention Rate = 1 minus payout rate

Question 3

Valid methods of valuation include

Answer 3

1) multiples of sales
2) Multiple of earnings
3) Multiple of cash flow
4) Multiple of book value
5) commissions
6) EBITDA

Question 4

super normal DDM

Answer 4

valuation method but it requires the firm pay a dividend to be utilized.

Question 5

Bond prices move

Answer 5

inversely with interest rates

When interest rates increase, bond prices fall (decrease)

Question 6

lower bond price will result

Answer 6

in higher current yields and eventual capital gains which increases the bond’s YTM

Question 7

Preferred stock is an example of

Answer 7

perpetuity

Question 8

To Value Perpetuity

Answer 8

Annual Dividend / required rate of return

Question 9

Taxable equivalent yield

Answer 9

Muni Tax / 1 - tax rate