Question 1

When the government injects funds into a commercial bank or other financial institution

Accepted Answer

A)  This usually takes the form of debt 
B)  This usually takes the form of common shares 
C)  This usually takes the form of preferred shares 
D)  This usually takes the form of a grant 
A)  This usually takes the form of debt 
B)  This usually takes the form of common shares 
C)  This usually takes the form of preferred shares 
D)  This usually takes the form of a grant C

Question 2

When IPOs are priced, the initial price

Accepted Answer

A)  Tends to closely match the price that shares trade at in the secondary market 
B)  Tends to be below the price that the shares trade at later in the secondary market 
C)  Tends to be above the price that the shares trade at later in the secondary market 
D)  Is based on fundamental values 
A)  Tends to closely match the price that shares trade at in the secondary market 
B)  Tends to be below the price that the shares trade at later in the secondary market 
C)  Tends to be above the price that the shares trade at later in the secondary market 
D)  Is based on fundamental values B

Question 3

Share prices rise sharply at the onset of a business cycle expansion because

Accepted Answer

A)  The outlook for profits (earnings growth) improves 
B)  Risk premiums drift lower 
C)  Risk-free rates increase 
D)  Both a and b 
A)  The outlook for profits (earnings growth) improves 
B)  Risk premiums drift lower 
C)  Risk-free rates increase 
D)  Both a and b D

Question 4

Which of the following contribute to variations in share prices?

Accepted Answer

A)  Variations in the equity premium 
B)  Variations in the risk-free rate 
C)  Variations in the outlook for earnings 
D)  All of the above 
A)  Variations in the equity premium 
B)  Variations in the risk-free rate 
C)  Variations in the outlook for earnings 
D)  All of the above

Question 5

Preferred shares

Accepted Answer

A)  Are regarded as equity 
B)  Have a lower claim on cash flow and assets than debt 
C)  Have a higher claim on cash flow and assets than common shares 
D)  All of the above 
A)  Are regarded as equity 
B)  Have a lower claim on cash flow and assets than debt 
C)  Have a higher claim on cash flow and assets than common shares 
D)  All of the above

Question 6

Typically, new equity issuance

Accepted Answer

A)  Roughly matches equity retirements 
B)  Is exceeded by equity retirements 
C)  Exceeds equity retirements 
D)  Takes the form of preferred issues 
A)  Roughly matches equity retirements 
B)  Is exceeded by equity retirements 
C)  Exceeds equity retirements 
D)  Takes the form of preferred issues

Question 7

Which of the following causes price-earnings ratios to differ between two firms at any time?

Accepted Answer

A)  Differences in idiosyncratic risk 
B)  Differences in earnings growth prospects 
C)  Differences in risk-free rates 
D)  Both a and b 
A)  Differences in idiosyncratic risk 
B)  Differences in earnings growth prospects 
C)  Differences in risk-free rates 
D)  Both a and b

Question 8

The largest source of equity funds comes from

Accepted Answer

A)  Initial public offerings 
B)  Conversions of convertible bonds 
C)  Current shareholders through retained earnings 
D)  Placements by the government 
A)  Initial public offerings 
B)  Conversions of convertible bonds 
C)  Current shareholders through retained earnings 
D)  Placements by the government

Question 9

Share prices provide discipline on managers of underperforming firms by

Accepted Answer

A)  Delivering a wake-up call to managers 
B)  Prompting shareholders to pressure boards of directors 
C)  Encouraging activist investors to step in 
D)  All of the above 
A)  Delivering a wake-up call to managers 
B)  Prompting shareholders to pressure boards of directors 
C)  Encouraging activist investors to step in 
D)  All of the above

Question 10

The equity premium

Accepted Answer

A)  Refers to the return that shareholders require over the yield on a risk-free asset 
B)  Refers to the fee that investors pay brokers when they buy stock 
C)  Refers to amount paid to buy insurance against downside equity price movements 
D)  Refers to the fee that registered brokers pay to the SEC 
A)  Refers to the return that shareholders require over the yield on a risk-free asset 
B)  Refers to the fee that investors pay brokers when they buy stock 
C)  Refers to amount paid to buy insurance against downside equity price movements 
D)  Refers to the fee that registered brokers pay to the SEC

Question 11

A higher dividend-payout ratio

Accepted Answer

A)  Unambiguously raises stock prices 
B)  Unambiguously lowers stock prices 
C)  Reduces growth in earnings 
D)  Increases growth in earnings 
A)  Unambiguously raises stock prices 
B)  Unambiguously lowers stock prices 
C)  Reduces growth in earnings 
D)  Increases growth in earnings

When the government injects funds into a commercial bank or other financial institution

When IPOs are priced, the initial price

Share prices rise sharply at the onset of a business cycle expansion because

Which of the following contribute to variations in share prices?

Preferred shares

Typically, new equity issuance

Which of the following causes price-earnings ratios to differ between two firms at any time?

The largest source of equity funds comes from

Share prices provide discipline on managers of underperforming firms by

The equity premium

A higher dividend-payout ratio

Introduction

Overview of the Financial System

The Special Role of Commercial Banks

Factors Affecting Yields

Principles of Portfolio Selection and Efficient Markets

The Money Market

The Bond Market

Securitization

The Mortgage Market

Central Banking and the Federal Reserve

Monetary Policy: The Basics

Monetary Policy: Challenges Faced by Policymakers

Financial Crises

The Foreign Exchange Market and Exchange Rate Regimes

Depository Institutions

The Pricing of Financial Assets

Mutual Funds

Hedge, Venture Capital, and Private Equity Funds

Large Institutional Investors

Filters

Exam 11: The Equity Market

When the government injects funds into a commercial bank or other financial institution

When IPOs are priced, the initial price

Share prices rise sharply at the onset of a business cycle expansion because

Which of the following contribute to variations in share prices?

Preferred shares

Typically, new equity issuance

Which of the following causes price-earnings ratios to differ between two firms at any time?

The largest source of equity funds comes from

Share prices provide discipline on managers of underperforming firms by

The equity premium

A higher dividend-payout ratio

Introduction

Overview of the Financial System

The Special Role of Commercial Banks

Factors Affecting Yields

Principles of Portfolio Selection and Efficient Markets

The Money Market

The Bond Market

Securitization

The Mortgage Market

Central Banking and the Federal Reserve

Monetary Policy: The Basics

Monetary Policy: Challenges Faced by Policymakers

Financial Crises

The Foreign Exchange Market and Exchange Rate Regimes

Depository Institutions

The Pricing of Financial Assets

Mutual Funds

Hedge, Venture Capital, and Private Equity Funds

Large Institutional Investors

Filters