ke must be greater than gc (or math will not work).Constant growth rate, gc, never changes.Stock pays dividends constant growth rate.Critical assumptions of infinite period DDM: Small changes in difference between ke and gc cause large changes in stock’s value.As difference narrows, value of stock rises.As difference between ke and gc widens, value of stock falls.Brokered markets: brokers find counterparties.Ĭritical relationship between ke and gc: Order-driven markets: buyers and sellers matched by rules. Market Structures Quote-driven markets: investors trade with dealers. Clearing instructions: how to clear and settle for sell orders, specify short sale or sale of owned security. Validity instructions: when to execute e.g., stop orders, day orders, fill-or-kill orders. ![]() Types of Orders Execution instructions: how to trade e.g., market orders, limit orders. ∑(current prices )(# shares ) × base value ∑(base year prices )(# base year shares ) Computing Index Prices ∑ stock prices Price-weighted Index = adjusted divisor Value-weighted Index =
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