Chapter7nt[1] - 1 Chapter 7 Valuing Stocks 2 Chapter 7...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 Chapter 7 Valuing Stocks 2 Chapter 7 Learning Goals LG1: Understand common stock ownership LG2: Know how stock exchanges function LG3: Track the stock market with stock indices and differentiate among the kinds of information each index provides LG4: Know the terminology of stock trading LG5: Compute stock values using dividend discount and constant-growth models LG6: Calculate the value of a variable growth rate company LG7: Assess relative stock value using the P/E ratio model 3 Common Stock Equity securities (stocks) represent ownership in a corporation Common stockholders are residual claimants The have a claim on cash flows only after all other claimants (employees, suppliers, debtholders, the government) have been paid At any point in time the market value of a firms common stock depends on many factors including: The companys profitability (cash flows) The companys growth potential Current market interest rates Conditions in the overall stock market 4 Stock Markets Stock exchanges provide liquidity: the ability for owners of common stock to convert their shares into cash at any time This liquidity, allowing buyers and sellers the means to transact with each other, gives people the confidence to buy shares in the first place 5 New York Stock Exchange Largest U.S. stock exchange in terms of dollar volume of trading Located in New York City at the corner of Wall and Broad streets Home to nearly 2,700 listed firms Firms must meet listing requirements They must pay listing fees and annual fees to the NYSE Trading Posts Spets Brokers 6 7 To list its stock on the NYSE a company must meet minimum requirements for Total number of stockholders Level of trading volume Corporate earnings Firm size What if a firm doesnt meet these criteria, or doesnt want to pay the high NYSE fees? If they want to list on an organized exchange, they could list on the exchange down the street: the American Stock Exchange 8 The American Stock Exchange (AMEX) The nations second largest floor-based stock exchange Also called the curb exchange Uses a spet system like the NYSE Also active in trading derivative securities and a very popular security called an Exchange Traded Fund (ETF) What if a firm doesnt need or want to be traded on an organized, floor-based exchange? They can trade over-the-counter on NASDAQ 9 The Nasdaq Stock Market An electronic stock market without a physical trading floor Home of thousands of the smallest publicly-traded firms, as well as many high-tech giants Microsoft, Apple, Intel, Google Nasdaq lists around 3,000 domestic and foreign companies Second largest equity market in the world behind the NYSE 10 Rather than a physical trading floor, Nasdaq uses an electronic trading system Uses a market maker system rather than a spet system Market makers are located all over the...
View Full Document

Page1 / 37

Chapter7nt[1] - 1 Chapter 7 Valuing Stocks 2 Chapter 7...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online