Stocks Flashcards
What is a share
A unit if equity ownership in a company
Where are shares in a public company traded
Stock markets like nasdaq
What can common stockholders do
Vote and receive dividends and sell their stock if they deem it profitable
What are A and B stocks
Common stocks that differ in dividend distribution and voting rights
How does preferred stock differ from common stock
Preferred stockholder receive a fixed dividend rate like a bond and so they are relatively price stable. Preferred stockholders also do not vote unless the firm has failed to pay them. They also have a claim on assets prior to the commoners but after debt holders
What does it mean that the issuer of a stock has limited liability
That the stockowners are only liable the amount they have in invested in the company do if it goes bankrupt the worst thing that happens ti the owners is that their share becomes worthless
Can a company do multiple IPOs
Yea if they want do make more shares to expand and develop their operations
What does the dividend discount model say
That the current price is the future dividend plus the expected future price divided by one plus the equity cost of capital
What is equity cost of capital
The return on an investment with equal risk
What is the total return on a stock according to the dividend discount model
The dividend rate of future price plus the increase ratio of the price. Dividend yield plus capital gains rate
When is the return of a stock the same as any asset if similar risk
That the estimated price and dividend yield are correct and also the equity cost of capital is correctly estimated. An open market without arbitrage is also required
When should you buy and sell a stock according to the dividend discount rule
You should buy a stock when the price is below its calculated value based in on future dividends and price and you should sell it when the price is above.
Is the fair price p0 dependant on our investment horizon
No Becouse the return in the future depends on the same equity cost of capital. The price of a stock is independent of our investment horizon
What us the formula for the dividend discount model
Sum of dividends divided by growth rate of equity cost if capital exponentiated by the time. The current price is an infinite sum of that
What is the constant growth ddm
A model where we assume that dividends grow at a constant growth rate and that the price thus becomes a perpetuity abs so can be calculated as the next dividend divided by the equity cost of capital rate minus the growth rate of the dividend
