| Term | Definition |
|---|
| Proxy | a document giving one person the authority to act for another, typically the power to vote shares of common stock |
| Proxy fight | an attempt by a person or group to gain control of a firm by getting its stockholders to grant that person or group the authority to vote its shares to replace the current management |
| Takeover | an action whereby a person or group succeeds in ousting a firm's management and taking control of the company |
| Pre-emptive right | provision in the corporate charter of bylaws that gives common stockholders the right to purchase on a prorate basis new issues of common stock (or convertible securites |
| Required rate of return | The minimum rate of return on a common stock that a stockholder considers acceptable |
| Founder's Shares | stock owned by the firm's founders that has sole voting rights but restricted dividends for a specified number of years. |
| Classified Stock | common stock that is given a special designation such as Class A or Class B to meet special needs of the company |
| Expected rate of return | the rate of return on a common stock that a stockholder expects to receive in the future |
| Actual (realized) rate of return | the rate of return on a common stock actually received by stockholders in some past period. It may be greater or less than expected rate of return and /or required rate of return |
| Marginal Investor | a representative investor whose actions reflect the beliefs of those people who are currently trading a stock. They determine the stock price |
| Market Price | the price at which stock sells in the marked |
| Growth Rate | expected rate of growth in dividends per share |
| Expected Rate of Return | minimum rate of return on a common stock that a stockholder considers acceptable |
| Expected Total Return | sum of the expected dividend yield and the expected gains yield |
| Capital gains yield | capital gain during a given year dividend by the beginning price |
| Preferred Stock | hybrid stock – similar to bonds and received stated dividend. Premium Price vs. common stock |
| Equilibrium | the condition under which the expected return on a security is just equal to its required return. Price is stable |
| Zero Growth Stock | a common stock whose future dividends are not expected to grow at all; that is g = 0 |
| Supernormal Growth | part of the firm's life cycle in which it grows much faster than the economy as a whole |
| Terminal Date | the date when the growth become constant |
| Horizontal Value | value at the horizon date of all dividends expected thereafter |
| Dividend yield | the expected dividend divided by the current price of a share of stock |
| Constant growth model | Used to find the value of a constant growth stock |
| Corporation valuation model | a valuation model used as an alternative to the discounted dividend model to determine a firm's value; especially one with no history of dividends, or the value of a division of a larger firm. The corporate model first calcualates the firm's free cash flows; then finds their present values to determine the firm's value |
| Treasury Stock | Stock that was repurchased and now owned by the company |
| Intrinsic value | Represents the "true" value of the company's stock; cannot directly observed and must instead be estimated. |
| Real Rate of Return | The rate of return demanded to cover investment risk (with no inflation). It has a risk-free element and a business-risk element |
| Capital Gains | The positive difference between the purchase price of a stock and its sale price. |
| Common Stock | the most basic form of ownership, including voting rights on major issues, in a company |
| Default Risk | The risk that the corporation issuing a bond may not make all scheduled payments |
| Chapter 11 | Reorganization preferred by company to rework terms with creditors |
| Chapter 7 | Liquidation; may be preferred by creditors |
| Company can't meet is obligations | chapter 11 to stop creditors from foreclosing; taking asset; and closing the business; Management stays in control and court appoints "trustee" |
| Company must demonstrate in bankruptcy | that is "worth more alive than dead. If not, judge will order liquidation under chapter 7 |
| Factors Affecting Default Risk | earnings stability, regulatory environment, potential anti-trust or product liabilities, pension liabilities, potential labor problems |
| Debentures | Unsecured bonds backed only by the general faith and credit of the borrowing company |
| Mortgage Bonds | type of bonds representing property put up as collateral |
| Subordinated debentures | which have a lower priority claim to the firm's assets in the event of bankruptcy |
| Junk bonds | Bonds rated below investment grade (also known as high yield bonds). BB - C |
| Investment Grade bonds | are bonds that are issued by finacially stable companies or municipalities. (AAA - BBB) |
Combine with other sets
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