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Valuing Stocks Essay

545 words - 3 pages

Valuing Stocks
1. "As owners, what rights and advantages do shareholders obtain" (Cornett, Adair, & Nofsinger, 2014, p. 203)?

They are able to participate in the economic growth of publicly traded firms without having to manage business entities directly. They have the right to residual cash flows of corporate profits and often receive some of these cash flows through dividends. In addition, shareholders vote on the members for board of directors and other proposals for the company. Shareholder capital losses are capped in that they can only lose their initial investment. Stocks are very liquid and investors can enjoy this liquidity in both their entrance into the stock market and their exit from it.

2. "Why might the Standard and Poor's 500 Index be a better ...view middle of the document...


Common stock dividends change over time, hopefully increasing in the long-term. Preferred stock pays a constant dividend. Preferred stockholders have higher precedence for payment in the event of firm liquidation from bankruptcy. However, preferred stockholders do not have voting rights that common stock holders enjoy. Preferred stock prices fluctuate with market interest rates and behave like corporate bond prices. Common stock price changes with the value of the company are underlying business.

4. "On March 14, 2013, the Dow Jones Industrial Average set a new high. The index closed at 14,539.14, which was up 83.86 points from the previous day's close of 14.455.28. What was the return (in percent to four decimal places) of the stock market for March 14, 2013" (Cornett, Adair, & Nofsinger, 2014)?

FV = PV × (1 + i)
14,539.14 = (14,539.14-83.86) × (1 + i)
i = (14,539.14/14,455.28)-1 = 5.8013%

5. "At your brokerage firm, it costs $9.50 per stock trade. How much money do you need to buy 300 shares of Time Warner, Inc. (TWX), which trades at $22.62" (Cornett, Adair, & Nofsinger, 2014)?

($22.62/share × 300 shares) + $9.50 = $6,795.50

6. "Financial analysts forecast Safeco Corporation (SAF) growth for the future to be a constant 10 percent. Safeco's recent dividend was $1.20. What is the value of Safeco stock when the required return is 12 percent" (Cornett, Adair, & Nofsinger, 2014, p. 205)?

7. "A preferred stock from Duquesne Light Company (DQUPRA) pays $2.10 in annual dividends. If the required return on the preferred stock is 5.4 percent, what is the value of the stock" (Cornett, Adair, & Nofsinger, 2014, p. 204)?

8. "Ultra Petroleum (UPL) has earnings per share of $1.56 and a P/E ratio of 32.48. What is the stock price" (Cornett, Adair, & Nofsinger, 2014, p. 205)?

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