Valuing Stocks Essay Sample

As proprietors what rights and advantages do stockholders obtain? What are disadvantages of having stock?

They are able to take part in the economic growing of publically traded houses without holding to pull off concern entities straight. They have the right to residual hard currency flows of corporate net incomes and frequently receive some of these hard currency flows through dividends. In add-on. stockholders vote on the members for board of managers and other proposals for the company. Shareholder capital losingss are capped in that they can merely lose their initial investing. Stockss are really liquid and investors can bask this liquidness in both their entryway into the stock market and their issue from it. A disadvantage of having stocks is that stocks are non guaranteed to return anything to the investor while the voucher payments and principal of bonds are. high returns is greater with stocks but there is a possibility of losing money.

Why might the Standard and Poor’s 500 indexes be a better step of stock market public presentation than the Dow Jones Industrial Average? Why is the Dow Jones Industrial Average more popular than the Standard and Poor’s 500 indexes?

The Standard and Poor’s 500 is a wide market index that includes stocks of the 500 largest US houses from 10 sectors of the economic system. It captures 80 % of the overall stock market capitalisation and is a good placeholder for what is happening in the overall stock market. The Dow Jones Industrial Average has been used for a longer period. around the mid-1880 ; it represents the activity of the 30 largest corporations in the US. covering 30 % of the stock market. Its popularity rises from it being the first index used by the media.

What are the differences and similarities between common stock and preferable stock?

Common stock is an ownership interest in a public corporation. Common stock dividends alteration over clip. hopefully increasing in the long-run. Preferable stock is a category of stock with fixed dividends. Preferred stock pays a changeless dividend. Preferable shareholders have higher precedency for payment in the event of steadfast settlement from bankruptcy. However. preferable shareholders do non hold voting rights that common stock holders enjoy. Preferable stock monetary values fluctuate with market involvement rates and behave similar corporate bond monetary values. Common stock monetary values alteration with the value of the company’s underlying concern. The similarities between the two are preferred stock is as a security with features someplace in-between a bond and a common stock. Both represent the ownership of a company.

On January 16. 2007. the Dow Jones Industrial Average set a new high. The index closed at 12. 582. 59. which was up 26. 51 that twenty-four hours. What was the return in % of the stock market that twenty-four hours? What are the three most recognized U. S. market indices?

FV = PV ? ( 1 + I )
12. 582. 59 = ( 12. 582. 59-26. 51 ) ? ( 1 + I )
I = ( 12. 582. 59/12. 556. 08 ) -1 = 0. 2111 %

Three most recognized markets: NSE-New York Stock Exchange. AMEX. NASDAQ

At your price reduction securities firm house. it costs 9. 50 per stock trade. How much money do you need to purchase 300 portions of Time Warner. Inc. . which trades at 22. 62? State based on the sum of committee paid. whether a traditional full-service agent or a price reduction agent is being used.

( $ 22. 62/share ten 300 portions ) – $ 9. 50= $ 6. 776. 50

Discount agent is being used.

Fiscal analysts forecast Safeco Corp. growing for the hereafter to be a changeless 10 % . Safeco’s recent dividend was 1. 20. What is the value of Safeco stock when the needed return is 12 % ?

P0= D0 ( 1+g ) = $ 1. 20 ( 1+ 0. 10 ) = $ 66. 00
i-g 0. 12- 0. 10

A preferable stock from Duquesne Light Company pays 2. 10 in one-year dividends. If the needed return on the preferable stock is 5. 4 % . what is the value of the stock? Why is the growing rate on the preferable stock dividend a 0 % ?

The preferable stock growing rate peers zero.

P0 = D0 ( 1+g ) = $ 2. 10 = $ 38. 89
i-g 0. 054-0

Ultra Petroleum has net incomes per portion of 1. 56 and a P/E ratio of 32. 48. What is the stock monetary value? Explain why the P/E theoretical account computes what is referred to as the stock’s comparative value?

Pn= ( P/E ) n x En = 32. 48x 1. 56= $ 50. 67

The P/E ratio multiplied by a firm’s net incomes consequence in the stock monetary value. For illustration. if a house is sing high growing and all other factors are held changeless. this will take to a higher P/E ratio reflecting the growing chances. Stock monetary values can alter merely because the market changes the P/E ratio appropriate for that stock.