Chapter 7 Flashcards
(19 cards)
What is the dividend yield?
Next year’s expected dividend divided by the current market price per share
Alternatively, it can also be defined as next year’s expected dividend divided by the current market price per share.
What does the capital gains yield equal?
Dividend growth rate
It is also known as the growth rate of the stock’s price.
If a firm pays a constant annual dividend, what must equal zero?
Capital gains yield
The ________ equals the total return on a stock.
dividend yield plus the dividend growth rate
What must be true for the dividend growth model (Gordon Model) of stock valuation?
The growth rate must be less than the discount rate
What makes the Gordon Growth Model invalid if the dividend growth rate is higher than the discount rate?
The discount rate is lower than the dividend growth rate
The dividend yield on a stock will increase if the:
stock price decreases
Which one of the following will increase the current value of a stock?
Increase in the capital gains yield
Which type of securities has the lowest priority in a bankruptcy proceeding?
Common stocks
Jenn and her family have invested in ABC company that recently filed for bankruptcy. In the bankruptcy proceeding, who had the lowest priority to claim ABC’s assets?
I. Jenn owns the preferred stocks.
II. Jenn’s parents own common stocks.
III. Jenn’s brother owns the subordinated bonds.
IV. Jenn’s sister owns the senior debts.
Jenn’s parents (common stocks)
Which right is never directly granted to all shareholders of a publicly held corporation?
Determining the amount of the dividend to be paid per share
Which statement regarding stocks is correct?
From a legal perspective, preferred stock is a form of corporate equity
Jenn could not attend the last shareholders’ meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which term applies to this granting of authority?
Proxy
Which example best describes the structure of ‘dual-class’ common stock?
ABC company’s CEO owns 10 votes per share while the general shareholders of ABC own one vote per share
Which statement is true regarding preferred stock?
From a legal perspective, preferred stock is a form of corporate equity
Which statement is correct regarding preferred stock dividends?
Preferred stock can be convertible to common stocks
Which of the following statements related to preferred stock is correct?
Cumulative preferred shares are more valuable than comparable noncumulative shares
Which statement is true about preferred stock?
Preferred stock pays fixed cash flows, similar to bonds
Preferred stock may have all of the following characteristics in common with bonds with the exception of:
tax-deductible payments (*dividends are NOT tax-deductible)
