Exam 4: Bank Valuation

Rates of return for CitiGroup and Chase Manhattan exceeded 20 percent in 1998.

When the competitive environment has considerable uncertainty, it may be advantageous for banks to expand their size and scope to reduce their risk.

Stock dividends are considered equivalent to cash dividends in calculating the rate of return.

What usually happens to the price of the seller's (target's) stock in a bank merger?

Assume that a stock pays $1 per share cash dividend and that during the year its market price increased from $20 to $25 per share. The rate of return on this stock is:

The conventional way to express the sales price of a target bank in a merger or acquisition deal is to use the:

Synergy is a potential benefit of bank mergers and acquisitions that is closely related to agency costs.

Plausible explanations of the lack of positive stock market response for buyer announcements of bank acquisitions include:

Unlike smaller banks, megabanks are likely to be motivated to merge or acquire other banks due to market power considerations.

Large banks involved in mergers appear to produce superior cash flows.

The determinants of the value of a share of stock may be thought of as:

The rate of return from holding a stock for a year is the sum of:

Which of the following would produce an increase in the price of a bank's stock?

In the study by Stephen Rhoades on the determinants of the ratio of the market price of a bank's stock to its book value, the author found which of the following variables to be important?

Rolls' hubris hypothesis argues that bank managers pay too much in acquisitions because they have excessive arrogance about their ability to produce profits from the merger organization.

If a rising level of interest rates causes the nominal discount rate for equity to increase, the market price of bank stock will ________, holding all else the same.

Beatty, Santomero, and Smirlock found that merger premiums were higher for target banks that had high ratios of U. S. Treasury investments to total assets.

If a stock pays $1 per share, and its price increases from $20 to $22 per share, the rate of return is 15 percent.

As the growth rate of dividends increases, the market price of bank stock will ________, holding all else the same.

Banks involved in mergers and acquisitions across state lines do not experience financial gains.