investor

Examples of investor in the following topics:

• Investor Preferences

  • The significance of investors' dividend preferences is a contested topic in finance that has serious implications for dividend policy.
  • The role of investor preferences for dividends and the value of a firm are pieces of the dividend puzzle, which is the subject of much academic debate.
  • Investor preferences are first split between choosing dividend payments now, or future capital gains in lieu of dividends.
  • The investor's preference between the current cash dividend and the future capital gain has been viewed in kind.
  • Investor preferences play an uncertain role in the "dividend puzzle," which refers to the phenomenon of companies that pay dividends being rewarded by investors with higher valuations, even though according to many economists, it should not matter to investors whether or not a firm pays dividends.

• Relationship Between Dividend Payments and the Growth Rate

  • From an investor's point of view, the fundamentals of a company are of the utmost importance.
  • One such fundamental that that investors take into account is how much capital is distributed to investors, and conversely how much capital is kept from investors.
  • Capital is distributed to investors via dividend payments and, indirectly, through capital gains.
  • Capital that is kept from investors is known as retained earnings.
  • As they mature, they tend to return more of the earnings back to investors.

• Setting the Target Payout Ratio

  • Investors seeking high current income and limited capital growth prefer companies with high Dividend Payout Ratios.
  • However investors seeking capital growth may prefer lower payout ratios.
  • Some investors, such as young people saving for retirement, may prefer higher returns later than smaller cash distributions now.
  • The Target Payout Ratio depends on what investors the management of a company are trying to attract, and what current investors' expectations are.
  • As they mature, they tend to return more of the earnings back to investors.

• Answers to Chapter 9 Questions

  • Investors are usually risk averse.
  • Investors prefer to hold liquid securities.
  • Investors prefer to invest in securities that entail low information costs.
  • Investors prefer to invest in securities that have lower taxes.
  • Preferred habitat theory is investors prefer a certain bond.

• Residual Dividend Model

  • This model can lead to unpredictable and inconsistent dividend returns for the investor.
  • The Residual Dividend Model is an outgrowth of The Modigliani and Miller Theory that posits that dividends are irrelevant to investors.
  • This school of thought believes that investors do not state any preference between current dividends and capital gains.
  • What investors want are high returns - either in the form of dividends or in the form of re-investment of retained earnings by the firm .
  • The firm paying out dividends is obviously generating income for an investor; however, even if the firm diverts some earnings for investment opportunities, the income of the investors will rise later, assuming that those investments are profitable.

• Market Actors

  • Specifically, market actors include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares.
  • Some studies have suggested that institutional investors and corporations trading in their own shares generally receive higher risk-adjusted returns than retail investors .
  • An investor is someone who allocates capital with the expectation of a financial return.
  • They are especially important to the stock market where large institutional investors dominate.
  • It is generally only open to certain types of investors specified by regulators.

• Interest Rate Parity Theorem

  • Investors use Interest Rate Parity Theorem to price forward contracts.
  • International investors use arbitrage to price a forward contract.
  • Thus, the investor locks into a forward contract today for a fixed exchange rate protecting the investor from the exchange rate risk.
  • Investor is indifferent between investing in the United States and Malaysia.
  • An investor would earn a negative return of 0.8.

• Differences Between Required Return and the Cost of Capital

  • Required return and cost of capital differ in their perspectives (investor versus company) and scope (individual versus all securities).
  • Required return refers to an investor's point of view, while cost of capital refers to the point of view of a company.
  • However, since required return is from the investor's point of view, it refers to the rate of return necessary to compensate investors for taking on the risk of the individual investment.
  • While a company's cost of capital for this particular investment is given by the rate required by the investor, it's overall cost of capital still takes into account all of the other securities it has issued.
  • Instead of taking into account all types of securities issued by a firm, an investor acquires the appropriate required return by taking the risk-free rate and adding an investment specific risk premium.

• Information Costs and Bond Prices

  • If investors need time and money to acquire information on securities, then they pay a greater information cost.
  • For example, investors know both U.S. government securities and corporate bonds from large corporations well, and the securities have the lowest information costs.
  • Investors pay a greater cost to acquire information for the high information cost bonds.
  • Thus, investors are attracted to the low-information cost bonds, boosting their demand for low information cost bonds, increasing the market price and decreasing market interest rate.
  • High information cost bonds are not as attractive as an investment, so investors buy fewer bonds, reducing bond prices and raising interest rates.

• Securitization and the 2008 Financial Crisis

  • Then investors buy the securities to earn the return on the fund's assets.
  • Then investors receive these payments as investment.
  • Credit-rating agencies could rate some bonds as AAA that pays the lowest return to investors, but investors are first in line if the fund goes bust.
  • Banks and investors foreclosed on homes that soared in value.
  • Thus, they pay a total interest of $215,925 to the investor fund.