Question

1. How does the approach of the three-step valuation differ for stocks vs. bonds? 2. Explain...

1. How does the approach of the three-step valuation differ for stocks vs. bonds?
2. Explain the difference between par value, book value, and market value for a common stock. Which is most important? Why?
3. What is meant by market efficiency? What are the three types of market efficiency?
4. What rights are given to stockholders? Explain each.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1. Valuation is the process by which we got to know about the prices of the stock and bonds. It is very good for an investor to know about before investing. The three step process are:

- Determining the cash flows

- Using an appropiarte discount rate

- Finally calculating the present value (PV) of teh cash flows

The valaution is different for a stock and bond. The determination of cash flow is very tough for shares as there is not committed payments unlike bonds. The discount rate is also difficult for the equity than bonds. For bonds, we can use risk free rate but shares it will be a difficult task.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assets Liabilities Cash $ 14,000 Accounts payable $ 16,000 Accounts receivable    19,000 Bonds payable 78,000...
Assets Liabilities Cash $ 14,000 Accounts payable $ 16,000 Accounts receivable    19,000 Bonds payable 78,000 Inventory    29,000         Total liabilities $ 94,000 Prepaid Expenses    12,400 Stockholders’ Equity     Total current assets    74,400 Preferred stock $ 24,000 Plant and equipment, net   203,200 Common stock 59,000 Total Assets $ 277,600 Paid-in capital in excess of par 29,000 Retained earnings 71,600        Total stockholders’ equity 183,600 Total liabilities & stockholders’ equity $277,600 You are to calculate the costs of the three...
9. When considering the value vs growth investing styles, which of the following characteristics would not...
9. When considering the value vs growth investing styles, which of the following characteristics would not be a characteristic found in the value approach? Group of answer choices a. Low multiples (Price-to-earnings, price-to-book value, etc.) b. Low (or no) dividends c. Out-of-favor stocks d. Favorite of Warren Buffett and Benjamin Graham 10. If I see a DELTA Airlines plane crash as I am walking out of Cameron Hall, and I am able to sell my DELTA stock before the price...
1. Explain the Difference Between Business Risk and Financial Risk 2. What are the three important...
1. Explain the Difference Between Business Risk and Financial Risk 2. What are the three important elements of asset valuation? 3. Miller's preferred stock is selling at $54 on the market and pays an annual dividend of $4.20 per share. a. What is the expected rate of return on the stock? b. If an investor's required rate of return is 9%, what is the value of the stock to that investor? c. Considering the investor's required rate of return, does...
(Bond valuation​) You are examining three bonds with a par value of ​$1 comma 000 ​(you...
(Bond valuation​) You are examining three bonds with a par value of ​$1 comma 000 ​(you receive ​$1 comma 000 at​ maturity) and are concerned with what would happen to their market value if interest rates​ (or the market discount​ rate) changed. The three bonds are Bond Along dash a bond with 6 years left to maturity that has an annual coupon interest rate of 9 ​percent, but the interest is paid semiannually. Bond Blong dash a bond with 11...
3.  3: Stocks and Their Valuation: Corporate Valuation Model The recognition that dividends are dependent on earnings,...
3.  3: Stocks and Their Valuation: Corporate Valuation Model The recognition that dividends are dependent on earnings, so a reliable dividend forecast is based on an underlying forecast of the firm's future sales, costs and capital requirements, has led to an alternative stock valuation approach, known as the corporate valuation model. The market value of a firm is equal to the present value of its expected future free cash flows plus the market value of its non-operating assets: Free cash flows...
1.What advantages and disadvantages do bonds offer investors relative to stocks? What type of investors are...
1.What advantages and disadvantages do bonds offer investors relative to stocks? What type of investors are likely to be interested in bond funds versus stock funds? 2.What are the advantages and disadvantages of owning a bond fund vs. individual U.S. Treasury bonds? Is the answer different for individual municipal bonds or high-yield bonds? 3. If a company’s credit rating is upgraded, what will be the impact on the yield spread and price of the company’s bonds? Why? 4. Does a...
Although Santona Osmann has some short‐term debt, you know that the company does not use short‐term...
Although Santona Osmann has some short‐term debt, you know that the company does not use short‐term interest‐bearing debt on a permanent basis but long‐term debt. You have been informed that the current price of Santona Osmann’s 9% annual coupon payment, noncallable bonds with 20 years remaining to maturity is $1,211.88, with a face value of $1,000.00. New bonds would be privately placed with no flotation cost. The firm's marginal tax rate is 35%. The current price of preferred stocks is...
1. (a) What are the two components of most stocks’ expected total return? (b) How does...
1. (a) What are the two components of most stocks’ expected total return? (b) How does one calculate the capital gains yield and the dividend yield of a stock? (c) If D1 = RM3.00, P0 = RM50, and the expected P at t=1 is equal to RM52, what are the stock’s expected dividend yield, capital gains yield, and total return for the coming year? 2. (a) Are stock prices affected more by long-term or short-term performance? Explain. (b) A stock...
Business Finance Theory Questions Define working capital? How is it measured? Calculate the amount of working...
Business Finance Theory Questions Define working capital? How is it measured? Calculate the amount of working capital for Snider Corporation SNIDER CORPORATION Balance Sheet December 31, 2010 Assets Current assets: Cash.................................................................................. $ 50,000 Marketable securities....................................................        20,000 Accounts receivable (net)............................................. ...... 160,000 Inventory...................................................................... ....   200,000 Total current assets....................................................... .... $430,000 Investments.................................................................. ........ 60,000 Plant and equipment............................................................ 600,000 Less: Accumulated depreciation.................................. ..... (190,000) Net plant and equipment............................................... ...    410,000 Total assets................................................................... .... $900,000 Liabilities and Stockholders’ Equity Current liabilities Account payable..............................................................
1.     Tennessee Water has $1,000 par value bonds outstanding at 5% interest. The bonds will  mature in 20...
1.     Tennessee Water has $1,000 par value bonds outstanding at 5% interest. The bonds will  mature in 20 years. Compute the current price of the bonds if the present yield to maturity is 7% 2.    Exodus Company has $1,000 par value bonds outstanding at 6% interest. The bonds will mature in 15 years. Compute the current price of the bonds if the current interest rate is 4%. 3.     The preferred stock of Ultra Corporation pays an annual dividend of $7.00. It has a required...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT