Summary Chapter 7: valuing bonds

Chapter 7: Valuing stock
1. 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