Note 3-5-08 (Ch6)

Note 3-5-08 (Ch6) - Computation of today’s stock price...

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3/17/2008 Notes CH6 Stocks Stocks, Stock Market *******Primary Market – Stocks initially issued (sale of stock first occurs)*********** IPO – initial public offering (of a new issue) Secondary Market – stocks later trade openly Common Stock – ownership of shares of a corporation Dividends – cash payment periodic on share of a corporation (calculated annually but usually paid quarterly) – paid to share holders P/E Ratio – Price of the share / earnings of the share =Po / EPS Book Value – based on accounting Market Value – Based on the market or investors (most relevant) Liquidation Value – Quick sales, how much will it worth after liabilities are all paid off Expected Return - % yield of investment over 1 year R = (DIV1 + P1 – P0) / P0 Dividend Discount Model
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Unformatted text preview: Computation of today’s stock price which states that the present value of the stock = present value (Discounted) of all expected future dividends Pg153 Pt – Present value of all expected future dividends after year t-Still based on PV of future dividends -Infinite dividends over infinite time When you move the time horizon (t) out, PV stays the same-sticks PV should not change No Growth of Dividends (Paid out to shareholders) – no growth of the company because there is no money to reinvest P0 = Div / r P0 = EPS (earnings per share) / r Constant growth of dividends – DDM in which dividends grow at a constant rate – pg154 P0 = Div / r-g P0 – share price Div1 – Expected dividend in year 1 R - Expected Return G – Dividend growth rate...
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This note was uploaded on 09/08/2010 for the course BUS 170 at San Jose State.

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Note 3-5-08 (Ch6) - Computation of today’s stock price...

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