Question 1

The owner of a trading license for the NYSE is called a:

Accepted Answer

A)  broker. 
B)  member. 
C)  agent. 
D)  specialist. 
E)  dealer. 
A)  broker. 
B)  member. 
C)  agent. 
D)  specialist. 
E)  dealer.

Question 2

Which one of the following statements related to the NYSE is correct?

Accepted Answer

A)  Exchange members must purchase trading licenses. 
B)  NYSE shareholders currently own "seats" on the exchange. 
C)  Designated market makers buy at the asked price. 
D)  The NYSE is privately owned by an investment firm. 
E)  Electronic trading has increased the demand for floor brokers. 
A)  Exchange members must purchase trading licenses. 
B)  NYSE shareholders currently own "seats" on the exchange. 
C)  Designated market makers buy at the asked price. 
D)  The NYSE is privately owned by an investment firm. 
E)  Electronic trading has increased the demand for floor brokers.

Question 3

AB Co. stock pays a constant annual dividend, sells for $56.07 a share, and has a market rate of return of 12.2 percent. What is the amount of the next annual dividend?

Accepted Answer

A)  $5.67 
B)  $5.94 
C)  $6.21 
D)  $6.84 
E)  $7.30 
A)  $5.67 
B)  $5.94 
C)  $6.21 
D)  $6.84 
E)  $7.30

Question 4

National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm's stock is:

Accepted Answer

A)  basically worthless as it offers no growth potential. 
B)  equal in value to the present value of $1 paid one year from today. 
C)  priced the same as a $1 perpetuity. 
D)  valued at an assumed growth rate of 1 percent. 
E)  worth $1 a share in the current market. 
A)  basically worthless as it offers no growth potential. 
B)  equal in value to the present value of $1 paid one year from today. 
C)  priced the same as a $1 perpetuity. 
D)  valued at an assumed growth rate of 1 percent. 
E)  worth $1 a share in the current market.

Question 5

A floor broker on the NYSE does which one of the following?

Accepted Answer

A)  Supervises the commission brokers of a specific financial firm 
B)  Trades for his or her own personal inventory 
C)  Executes orders on behalf of customers 
D)  Maintains an inventory and assumes the role of a market maker 
E)  Is charged with maintaining a liquid, orderly market 
A)  Supervises the commission brokers of a specific financial firm 
B)  Trades for his or her own personal inventory 
C)  Executes orders on behalf of customers 
D)  Maintains an inventory and assumes the role of a market maker 
E)  Is charged with maintaining a liquid, orderly market

Question 6

Home Services common stock offers an expected total return of 14.56 percent. The last annual dividend was $2.27 a share. Dividends increase at a constant 2.1 percent per year. What is the dividend yield?

Accepted Answer

A)  16.66 percent 
B)  16.48 percent 
C)  13.35 percent 
D)  14.20 percent 
E)  12.46 percent 
A)  16.66 percent 
B)  16.48 percent 
C)  13.35 percent 
D)  14.20 percent 
E)  12.46 percent

Question 7

Your local toy store just announced its annual dividend will be $4 dividend next year, $3 the following year, and then a final liquidating dividend of $46 a share in Year 3. At a discount rate of 18 percent, what should one share sell for today?

Accepted Answer

A)  $36.21 
B)  $31.48 
C)  $35.64 
D)  $39.09 
E)  $33.54 
A)  $36.21 
B)  $31.48 
C)  $35.64 
D)  $39.09 
E)  $33.54

Question 8

The stream of customer orders coming in to the NYSE trading floor is called the:

Accepted Answer

A)  paper trail. 
B)  trading volume. 
C)  order flow. 
D)  bid-ask spread. 
E)  commission trail. 
A)  paper trail. 
B)  trading volume. 
C)  order flow. 
D)  bid-ask spread. 
E)  commission trail.

Question 9

Which one of the following transactions occurs in the primary market?

Accepted Answer

A)  Purchase of 500 shares of GE stock from a current shareholder 
B)  Gift of 100 outstanding shares to a charitable organization 
C)  Gift of 200 shares of stock by a mother to her daughter 
D)  A purchase of newly issued stock from the issuer 
E)  IBM's purchase of GE stock from a dealer 
A)  Purchase of 500 shares of GE stock from a current shareholder 
B)  Gift of 100 outstanding shares to a charitable organization 
C)  Gift of 200 shares of stock by a mother to her daughter 
D)  A purchase of newly issued stock from the issuer 
E)  IBM's purchase of GE stock from a dealer

Question 10

Russell United has 28,500 shares of stock outstanding and has two open seats on its board of directors. Each share of common stock is granted one vote. How many additional votes are required to guarantee a seat on the board if the company were to use straight voting rather than cumulative voting?

Accepted Answer

A)  0 
B)  4,750 
C)  4,749 
D)  4,751 
E)  950 
A)  0 
B)  4,750 
C)  4,749 
D)  4,751 
E)  950

Question 11

You own one share of a cumulative preferred stock that pays quarterly dividends. The firm has recently suffered some financial setbacks and has failed to pay the last two dividends. However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter. As a preferred shareholder, you should expect to receive the equivalent of ________ quarter(s) of dividends when the next dividend is paid.

Accepted Answer

A)  0 
B)  1 
C)  2 
D)  3 
E)  either 1, 2, or 3 
A)  0 
B)  1 
C)  2 
D)  3 
E)  either 1, 2, or 3

Question 12

Next year, Jensen's will pay an annual dividend of $3.32 per share. The company has been reducing its dividends by 7 percent annually. What is this stock worth today if the required return is 15.5 percent?

Accepted Answer

A)  $16.92 
B)  $25.87 
C)  $14.76 
D)  $38.33 
E)  $39.06 
A)  $16.92 
B)  $25.87 
C)  $14.76 
D)  $38.33 
E)  $39.06

Question 13

Which one of the following applies to the dividend growth model?

Accepted Answer

A)  An individual stock has the same value to every investor. 
B)  Even if the dividend amount and growth rate remain constant, the value of a stock can vary. 
C)  Zero-growth stocks have no market value. 
D)  Stocks that pay the same annual dividend will have equal market values. 
E)  The dividend growth rate is inversely related to a stock's market price. 
A)  An individual stock has the same value to every investor. 
B)  Even if the dividend amount and growth rate remain constant, the value of a stock can vary. 
C)  Zero-growth stocks have no market value. 
D)  Stocks that pay the same annual dividend will have equal market values. 
E)  The dividend growth rate is inversely related to a stock's market price.

Question 14

Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:

Accepted Answer

A)  an increase in all stock values. 
B)  all stock values to remain constant. 
C)  a decrease in all stock values. 
D)  dividend-paying stocks to maintain a constant price while non-dividend paying stocks decrease in value. 
E)  dividend-paying stocks to increase in price while non-dividend paying stocks remain constant in value. 
A)  an increase in all stock values. 
B)  all stock values to remain constant. 
C)  a decrease in all stock values. 
D)  dividend-paying stocks to maintain a constant price while non-dividend paying stocks decrease in value. 
E)  dividend-paying stocks to increase in price while non-dividend paying stocks remain constant in value.

Question 15

A member who acts as a dealer in a limited number of securities on the floor of the NYSE is called a:

Accepted Answer

A)  floor trader. 
B)  floor post. 
C)  designated market maker. 
D)  floor broker. 
E)  commission broker. 
A)  floor trader. 
B)  floor post. 
C)  designated market maker. 
D)  floor broker. 
E)  commission broker.

Question 16

The Grist Mill just paid its annual dividend of $1.58 per share. The dividends are expected to grow at 2.7 percent per year, indefinitely. What will the price of this stock be in 7 years if investors require an annual return of 15.2 percent?

Accepted Answer

A)  $15.08 
B)  $15.24 
C)  $15.83 
D)  $15.64 
E)  $15.33 
A)  $15.08 
B)  $15.24 
C)  $15.83 
D)  $15.64 
E)  $15.33

Question 17

Gee-Gee's is going to pay an annual dividend of $2.05 a share next year. This year, the company paid a dividend of $2 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth six years from now if the applicable discount rate is 11.2 percent?

Accepted Answer

A)  $26.94 
B)  $28.00 
C)  $26.28 
D)  $27.33 
E)  $26.66 
A)  $26.94 
B)  $28.00 
C)  $26.28 
D)  $27.33 
E)  $26.66

Question 18

NYSE designated market makers:

Accepted Answer

A)  execute trades on behalf of their clients. 
B)  are guaranteed a profit on every stock purchased and resold. 
C)  act as dealers. 
D)  provide a one-sided market. 
E)  are also referred to as "$2 brokers." 
A)  execute trades on behalf of their clients. 
B)  are guaranteed a profit on every stock purchased and resold. 
C)  act as dealers. 
D)  provide a one-sided market. 
E)  are also referred to as "$2 brokers."

Question 19

Timber Co. just paid its annual dividend of $3.82 and expects to reduce this payout by 6 percent each year, indefinitely. What is the per share value of this stock if you require a return of 14.5 percent?

Accepted Answer

A)  $34.79 
B)  $17.52 
C)  $18.27 
D)  $42.24 
E)  $39.15 
A)  $34.79 
B)  $17.52 
C)  $18.27 
D)  $42.24 
E)  $39.15

Question 20

Which one of the following is an electronic system used by the NYSE for directly transmitting orders to designated market makers?

Accepted Answer

A)  Garage order flow 
B)  Pillar system 
C)  Big Room system 
D)  SLP network 
E)  Order NET 
A)  Garage order flow 
B)  Pillar system 
C)  Big Room system 
D)  SLP network 
E)  Order NET

Exam 8: Stock Valuation

The owner of a trading license for the NYSE is called a:

Which one of the following statements related to the NYSE is correct?

AB Co. stock pays a constant annual dividend, sells for $56.07 a share, and has a market rate of return of 12.2 percent. What is the amount of the next annual dividend?

National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm's stock is:

A floor broker on the NYSE does which one of the following?

Home Services common stock offers an expected total return of 14.56 percent. The last annual dividend was $2.27 a share. Dividends increase at a constant 2.1 percent per year. What is the dividend yield?

Your local toy store just announced its annual dividend will be $4 dividend next year, $3 the following year, and then a final liquidating dividend of $46 a share in Year 3. At a discount rate of 18 percent, what should one share sell for today?

The stream of customer orders coming in to the NYSE trading floor is called the:

Which one of the following transactions occurs in the primary market?

Russell United has 28,500 shares of stock outstanding and has two open seats on its board of directors. Each share of common stock is granted one vote. How many additional votes are required to guarantee a seat on the board if the company were to use straight voting rather than cumulative voting?

Next year, Jensen's will pay an annual dividend of $3.32 per share. The company has been reducing its dividends by 7 percent annually. What is this stock worth today if the required return is 15.5 percent?

Which one of the following applies to the dividend growth model?

Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:

A member who acts as a dealer in a limited number of securities on the floor of the NYSE is called a:

The Grist Mill just paid its annual dividend of $1.58 per share. The dividends are expected to grow at 2.7 percent per year, indefinitely. What will the price of this stock be in 7 years if investors require an annual return of 15.2 percent?

NYSE designated market makers:

Timber Co. just paid its annual dividend of $3.82 and expects to reduce this payout by 6 percent each year, indefinitely. What is the per share value of this stock if you require a return of 14.5 percent?

Which one of the following is an electronic system used by the NYSE for directly transmitting orders to designated market makers?

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