Lecture 2? Flashcards
(23 cards)
What is equity?
A share representing an ownership stake in a company, entitled to periodic dividends and can be sold at market price.
Equity is akin to a pizza and a slice, where a firm represents the pizza and a share represents a slice.
What are the two distinct types of financial securities?
- Debt
- Equity
What is stock market capitalization?
The total value of the companies listed on the stock market.
Why is the stock market important?
A country’s importance is influenced by the state of its stock market and currency performance.
Name the top four major international stock markets.
- USA
- Japan
- UK
- China
What is a primary market?
A market where shares are issued for the first time, often through initial public offerings (IPOs).
What are ordinary shares?
Shares representing partial ownership of a company, entitling the owner to vote and receive dividends based on profits.
What are preference shares?
Shares that entitle the holder to a fixed dividend and have priority over ordinary shareholders.
What is a rights issue?
The issuance of new shares by a company to raise new finance, offered first to current shareholders in proportion to their existing shares.
What is the formula for calculating share price after a rights issue?
Share price after the rights issue = (Current price * Number of existing shares + Price of new share) / Total number of shares after issue.
What are the two forms of return on an investment?
- Income (dividends or coupons)
- Capital gain/loss (based on price change)
What does the dividend discount model (DDM) calculate?
The current price (present value) of a share based on future dividend payments.
What is a limitation of the dividend discount model?
R must be greater than g and cannot be applied to firms with no dividends.
What is cumulative preference shares?
Preference shares that entitle the holder to any missed dividends if earnings recover before ordinary shareholders receive dividends.
What are convertible preference shares?
Preference shares that can be converted into ordinary shares under predetermined conditions.
What are redeemable preference shares?
Shares that the company can buy back at their original price.
What is participating preference shares?
Preference shares that allow greater dividends when profits exceed certain levels.
What is the difference between cash markets and forward markets?
- Cash markets: Stocks are delivered as quickly as settlement allows.
- Forward markets: Stocks are delivered at a set future date.
What is the role of market-makers in the stock market?
They provide information and facilitate trading by ensuring liquidity.
Fill in the blank: The NYSE is the biggest stock exchange in the world, accounting for ______ of the world total capitalization.
¼
What is the primary function of listing requirements?
To set conditions and standards for a company to gain and maintain a stock exchange listing.
What is the formula for arithmetic return (R) for one period?
R = (Ending price - Beginning price + Dividends) / Beginning price.
What is the FTSE100 index?
A stock market index that tracks the performance of the 100 largest companies listed on the London Stock Exchange.
