TAILIEUCHUNG - Lecture Fundamentals of corporate finance (3/e): Chapter 9 - Robert Parrino, David S. Kidwell, Thomas Bates

chapter 9, stock valuation. After studying this chapter you will be able to: How stock prices depend on future dividends and dividend growth, the different ways corporate directors are elected to office, how the stock markets work. | Fundamentals of Corporate Finance, 3/e Robert Parrino, . David S. Kidwell, . Thomas W. Bates, . 1 Copyright© 2015 John Wiley & Sons, Inc. Chapter 9: Stock Valuation Learning Objectives List and describe the four types of secondary markets Explain why many financial analysts treat preferred stock as a special type of bond rather than as an equity security Describe how the general dividend-valuation model values a share of stock Copyright© 2015 John Wiley & Sons, Inc. 3 Learning Objectives Discuss the assumptions that are necessary to make the general dividend-valuation model easier to use, and use the model to compute the value of a firm’s stock Explain why g must be less than R in the constant-growth dividend model Explain how valuing preferred stock with a stated maturity differs from valuing preferred stock with no maturity, and calculate the price of a share of preferred stock under both conditions Copyright© 2015 John Wiley & Sons, Inc. 4 The Market for Stocks Stocks are equity securities, they represent certificates of ownership in a corporation Households hold the largest share of equity securities, more than 36% of corporate equity Pension funds are the largest institutional investors in equities (21%), followed by mutual funds (20%), and foreign investors (10%) Secondary Markets Investors buy and sell previously issued securities among themselves in secondary markets Secondary markets provide marketability and fair prices for shares of stock Firms receive higher prices for securities they issue in primary markets because investors are more willing to buy securities that are easy to resell in a secondary market Secondary Markets and Market Efficiency In an efficient market, stock prices are updated constantly as new information reaches the market and is immediately incorporated into estimates of market values Secondary markets bring us closer to the ideal of a perfectly efficient market Provide information about security pricing Give buyers and

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