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Summary Chapter 7: valuing bonds
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Chapter 7: valuing bonds (B&F)
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Chapter 7: Valuing stock1. Stock and the stock market
• Primary market
- Market for the sale of new securities by corporations
• Initial Public Offering (IPO)
- First offering of stock to the general public
• Primary offering
- The corporation sells shares in the firm
• Common stock
- Ownership shares in a publicly held corporation
• Secondary market
- Market in which previously issued securities are traded among investors
• Dividend
- Periodic cash distribution from the firm to the shareholders
• P/E ratio
- Ratio of stock price to company earnings per share
• Bid price
- The prices at which investors
are willing to buy shares
• Ask price
- The prices at which current
shareholders are willing to sell
their shares
, Example
If an investor wishes to purchase 100 shares of FedEx, how much could the investor expect to
pay for the shares? What is the P/E ratio and dividend yield?
Payment: 100 x 159.52 = $15 952
P/E Ratio: 160..80 = 42.25
Dividend yield: 1..39 = 0.65%
Share price history for FedEx
2. Market values, book values an liquidation values
• Book value
- Net worth of the firm according to the balance sheet
• Liquidation value
- Net proceeds that could be realized by selling the firm’s assets and paying off its
creditors
• Market value balance sheet
- Financial statement that uses market value of all assets and liabilities
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