Question 1

Which one of following is the rate at which a stock's price is expected to appreciate?

Accepted Answer

A)  Current yield 
B)  Total return 
C)  Dividend yield 
D)  Capital gains yield 
E)  Coupon rate 
A)  Current yield 
B)  Total return 
C)  Dividend yield 
D)  Capital gains yield 
E)  Coupon rate

Question 2

Which one of the following statements applies to NASDAQ?

Accepted Answer

A)  Composed of four separate markets 
B)  Exchange floor located in Chicago 
C)  Provides two levels of information access 
D)  Designated market maker system 
E)  Multiple market maker system 
A)  Composed of four separate markets 
B)  Exchange floor located in Chicago 
C)  Provides two levels of information access 
D)  Designated market maker system 
E)  Multiple market maker system

Question 3

Sew 'N More just paid an annual dividend of $1.42 a share. The firm plans to pay annual dividends of $1.45, $1.50, and $1.53 over the next 3 years, respectively. After that time, the dividends will be held constant at $1.60 per share. What is this stock worth today at a discount rate of 11.7 percent?

Accepted Answer

A)  $12.39 
B)  $13.30 
C)  $13.67 
D)  $12.79 
E)  $13.41 
A)  $12.39 
B)  $13.30 
C)  $13.67 
D)  $12.79 
E)  $13.41

Question 4

An individual on the floor of the NYSE who owns a trading license and buys and sells for his or her personal account is called a:

Accepted Answer

A)  floor trader. 
B)  exchange customer. 
C)  specialist. 
D)  floor broker. 
E)  market maker. 
A)  floor trader. 
B)  exchange customer. 
C)  specialist. 
D)  floor broker. 
E)  market maker.

Question 5

An agent who maintains an inventory from which he or she buys and sells securities is called a:

Accepted Answer

A)  broker. 
B)  trader. 
C)  capitalist. 
D)  principal. 
E)  dealer. 
A)  broker. 
B)  trader. 
C)  capitalist. 
D)  principal. 
E)  dealer.

Question 6

A decrease in which of the following will increase the current value of a stock according to the dividend growth model?

Accepted Answer

A)  Dividend amount 
B)  Number of future dividends, provided the total number of dividends is less than infinite 
C)  Dividend growth rate 
D)  Discount rate 
E)  Both the discount rate and the dividend growth rate 
A)  Dividend amount 
B)  Number of future dividends, provided the total number of dividends is less than infinite 
C)  Dividend growth rate 
D)  Discount rate 
E)  Both the discount rate and the dividend growth rate

Question 7

A forward PE is based on:

Accepted Answer

A)  the last four quarterly dividend payments. 
B)  the last dividend payment multiplied by 2. 
C)  historical earnings. 
D)  estimated future earnings. 
E)  industry averages. 
A)  the last four quarterly dividend payments. 
B)  the last dividend payment multiplied by 2. 
C)  historical earnings. 
D)  estimated future earnings. 
E)  industry averages.

Question 8

Roy's Welding common stock sells for $58.49 a share and pays an annual dividend that increases by 1.3 percent annually. The market rate of return on this stock is 12.6 percent. What is the amount of the last dividend paid?

Accepted Answer

A)  $6.60 
B)  $5.86 
C)  $6.52 
D)  $6.98 
E)  $5.64 
A)  $6.60 
B)  $5.86 
C)  $6.52 
D)  $6.98 
E)  $5.64

Question 9

Crystal Glass recently paid $3.60 as an annual dividend. Future dividends are projected at $3.80, $4.10, and $4.25 over the next three years, respectively. Beginning four years from now, the dividend is expected to increase by 3.25 percent annually. What is one share of this stock worth today at a discount rate of 12.5 percent?

Accepted Answer

A)  $42.92 
B)  $43.40 
C)  $45.12 
D)  $45.88 
E)  $46.50 
A)  $42.92 
B)  $43.40 
C)  $45.12 
D)  $45.88 
E)  $46.50

Question 10

Jen owns 30 shares of stock in Delta Fashions and wants to win a seat on the board of directors. The firm has a total of 100 shares of stock outstanding. Each share receives one vote. Presently, the company is voting to elect three new directors. Which one of the following statements must be true given this information?

Accepted Answer

A)  Regardless of the voting procedure, Jen does not own enough shares to gain a seat on the board. 
B)  If straight voting applies, Jen is assured a seat on the board. 
C)  If straight voting applies, Jen can control all of the open seats. 
D)  If cumulative voting applies, Jen is assured one seat on the board. 
E)  If cumulative voting applies, Jen can control all of the open seats. 
A)  Regardless of the voting procedure, Jen does not own enough shares to gain a seat on the board. 
B)  If straight voting applies, Jen is assured a seat on the board. 
C)  If straight voting applies, Jen can control all of the open seats. 
D)  If cumulative voting applies, Jen is assured one seat on the board. 
E)  If cumulative voting applies, Jen can control all of the open seats.

Question 11

You want to be on the board of directors of Uptown Communications. Since you are the only shareholder who will vote for you, you will need to own more than half of the outstanding shares of stock if you are to be elected to the board. What is the type of voting called that requires this level of stock ownership to be successfully elected?

Accepted Answer

A)  Democratic 
B)  Cumulative 
C)  Straight 
D)  Deferred 
E)  Proxy 
A)  Democratic 
B)  Cumulative 
C)  Straight 
D)  Deferred 
E)  Proxy

Question 12

Who can access Level 3 of NASDAQ's information?

Accepted Answer

A)  Anyone with internet access 
B)  Only NASDAQ regulators 
C)  Customers who pay an access fee 
D)  NASDAQ market makers 
E)  There is no Level 3 
A)  Anyone with internet access 
B)  Only NASDAQ regulators 
C)  Customers who pay an access fee 
D)  NASDAQ market makers 
E)  There is no Level 3

Question 13

The Uptowner will pay an annual dividend of $3.26 a share next year with future dividends increasing by 2.8 percent annually. What is the market rate of return if the stock is currently selling for $49.10 a share?

Accepted Answer

A)  9.63 percent 
B)  9.13 percent 
C)  8.46 percent 
D)  9.44 percent 
E)  6.83 percent 
A)  9.63 percent 
B)  9.13 percent 
C)  8.46 percent 
D)  9.44 percent 
E)  6.83 percent

Question 14

Currently, a firm has an EPS of $2.08 and a benchmark PE of 12.7. Earnings are expected to grow by 3.8 percent annually. What is the estimated current stock price?

Accepted Answer

A)  $27.42 
B)  $27.09 
C)  $26.08 
D)  $26.42 
E)  $28.13 
A)  $27.42 
B)  $27.09 
C)  $26.08 
D)  $26.42 
E)  $28.13

Question 15

The common stock of Dayton Repair sells for $47.92 a share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate of return on this stock?

Accepted Answer

A)  4.84 percent 
B)  6.41 percent 
C)  9.92 percent 
D)  6.14 percent 
E)  7.28 percent 
A)  4.84 percent 
B)  6.41 percent 
C)  9.92 percent 
D)  6.14 percent 
E)  7.28 percent

Question 16

JL Co. stock currently sells for $64 per share and the required return is 12 percent. The total return is evenly divided between the capital gains yield and the dividend yield. What is the current dividend per share if it's the company's policy to always maintain a constant growth rate in its dividends?

Accepted Answer

A)  $4.09 
B)  $3.62 
C)  $4.02 
D)  $3.56 
E)  $3.84 
A)  $4.09 
B)  $3.62 
C)  $4.02 
D)  $3.56 
E)  $3.84

Question 17

A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market?

Accepted Answer

A)  Auction 
B)  Private 
C)  Over-the-counter 
D)  Regional 
E)  Insider 
A)  Auction 
B)  Private 
C)  Over-the-counter 
D)  Regional 
E)  Insider

Question 18

Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders?

Accepted Answer

A)  Right to share in company profits prior to other shareholders 
B)  Right to elect the corporate directors 
C)  Right to vote on proposed mergers 
D)  Right to all residual income after the common dividends have been paid 
E)  Right to a permanent seat on the board of directors 
A)  Right to share in company profits prior to other shareholders 
B)  Right to elect the corporate directors 
C)  Right to vote on proposed mergers 
D)  Right to all residual income after the common dividends have been paid 
E)  Right to a permanent seat on the board of directors

Question 19

Hi-Tek is a young start-up company that is currently retaining all of its earnings. The company plans to pay a $2 per share dividend in Year 7 and  increase that dividend by 2.2 percent per year thereafter. What is the current share price if the required return is 16 percent?

Accepted Answer

A)  $5.95 
B)  $6.62 
C)  $8.59 
D)  $14.29 
E)  $11.78 
A)  $5.95 
B)  $6.62 
C)  $8.59 
D)  $14.29 
E)  $11.78

Question 20

A company has four open seats on its board of directors. There are seven candidates vying for these four positions. There will be a single election to determine the winners. As the owner of 100 shares of stock, you will receive one vote per share for each open seat. You decide to cast all 400 of your votes for a single candidate. What is this type of voting called?

Accepted Answer

A)  Democratic 
B)  Cumulative 
C)  Straight 
D)  Deferred 
E)  Proxy 
A)  Democratic 
B)  Cumulative 
C)  Straight 
D)  Deferred 
E)  Proxy

Exam 8: Stock Valuation

Which one of following is the rate at which a stock's price is expected to appreciate?

Which one of the following statements applies to NASDAQ?

An individual on the floor of the NYSE who owns a trading license and buys and sells for his or her personal account is called a:

An agent who maintains an inventory from which he or she buys and sells securities is called a:

A decrease in which of the following will increase the current value of a stock according to the dividend growth model?

A forward PE is based on:

Roy's Welding common stock sells for $58.49 a share and pays an annual dividend that increases by 1.3 percent annually. The market rate of return on this stock is 12.6 percent. What is the amount of the last dividend paid?

Who can access Level 3 of NASDAQ's information?

The Uptowner will pay an annual dividend of $3.26 a share next year with future dividends increasing by 2.8 percent annually. What is the market rate of return if the stock is currently selling for $49.10 a share?

Currently, a firm has an EPS of $2.08 and a benchmark PE of 12.7. Earnings are expected to grow by 3.8 percent annually. What is the estimated current stock price?

The common stock of Dayton Repair sells for $47.92 a share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate of return on this stock?

A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market?

Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders?

Hi-Tek is a young start-up company that is currently retaining all of its earnings. The company plans to pay a $2 per share dividend in Year 7 and increase that dividend by 2.2 percent per year thereafter. What is the current share price if the required return is 16 percent?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working with Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons from Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters