Question 1

Which of the following is true of founders' shares?

Accepted Answer

A) Founders' shares are certificates that represent ownership in stocks of foreign companies held in trust by the bank that created the founders' shares. 
B) The terms founders' shares and Euro stocks are used interchangeably. 
C) Founders' shares are stocks owned by the creators of a company that have sole voting rights but generally pay out only restricted (if any) dividends for a specified number of years. 
D) Founders' shares are issued by foreign companies and traded in the United States. 
E) With the exception of shares traded in the United States, any shares that are traded in a country other than the issuing company's home country are called founders' shares. 
A) Founders' shares are certificates that represent ownership in stocks of foreign companies held in trust by the bank that created the founders' shares. 
B) The terms founders' shares and Euro stocks are used interchangeably. 
C) Founders' shares are stocks owned by the creators of a company that have sole voting rights but generally pay out only restricted (if any) dividends for a specified number of years. 
D) Founders' shares are issued by foreign companies and traded in the United States. 
E) With the exception of shares traded in the United States, any shares that are traded in a country other than the issuing company's home country are called founders' shares.

Question 2

Which of the following represents the minimum legal financial obligation of a common stockholder if a firm is liquidated and additional funds are needed to repay its debt?

Accepted Answer

A) The redemption value of the common stock 
B) The par value of the common stock 
C) The earnings per share of the common stock 
D) The interest obligation per share of the common stock 
E) The market value per share of the common stock 
A) The redemption value of the common stock 
B) The par value of the common stock 
C) The earnings per share of the common stock 
D) The interest obligation per share of the common stock 
E) The market value per share of the common stock

Question 3

What action would the management take if it wants to gain more ownership control of the firm?

Accepted Answer

A) Issue more growth stocks 
B) Issue more common stock to the public 
C) Repay portions of its loans 
D) Repurchase shares of common stock 
E) Pay cumulative dividends to preferred stocks 
A) Issue more growth stocks 
B) Issue more common stock to the public 
C) Repay portions of its loans 
D) Repurchase shares of common stock 
E) Pay cumulative dividends to preferred stocks

Question 4

If a preferred stock issue has a conversion feature, the stock can be converted into _____.

Accepted Answer

A) common stock 
B) corporate bonds 
C) bonds with voting rights 
D) cumulative stock 
E) founders stock 
A) common stock 
B) corporate bonds 
C) bonds with voting rights 
D) cumulative stock 
E) founders stock

Question 5

On January 1 of the current year, the price of a stock is $42.50, whereas on December 31 of the current year, the price of the stock is $48.78. Determine the capital gain yield of the stock.

Accepted Answer

A) 13.25% 
B) 14.78% 
C) 15.14% 
D) 16.33% 
E) 17.49% 
A) 13.25% 
B) 14.78% 
C) 15.14% 
D) 16.33% 
E) 17.49%

Question 6

Certificates that represent ownership in stocks of foreign companies and are held in trusts at banks located in the countries where the stocks are traded are called _____.

Accepted Answer

A) certificates of ownership 
B) foreign stock funds 
C) Samurai mutual funds 
D) American depository receipts 
E) Euro stocks 
A) certificates of ownership 
B) foreign stock funds 
C) Samurai mutual funds 
D) American depository receipts 
E) Euro stocks

Question 7

American depository receipts (ADRs) are foreign stocks listed on stock exchanges located outside the country where the firms are headquartered.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following types of securities is referred to as a hybrid security?

Accepted Answer

A) Corporate bonds 
B) Preferred stock 
C) Founders' shares 
D) Foreign equity 
E) Growth stock 
A) Corporate bonds 
B) Preferred stock 
C) Founders' shares 
D) Foreign equity 
E) Growth stock

Question 9

Which of the following stocks is a nonvoting stock and is referred to as hybrid stock?

Accepted Answer

A) Common stock 
B) Preferred stock 
C) Founders' shares 
D) Preemptive stock 
E) Growth stock 
A) Common stock 
B) Preferred stock 
C) Founders' shares 
D) Preemptive stock 
E) Growth stock

Question 10

If a firm wants to be able to redeem some of its preferred stock at some date after issue, it must _____.

Accepted Answer

A) pay accumulated dividends to the common stockholders 
B) issue the stock at par value at the time of issue 
C) incorporate a call provision in the preferred stock issue 
D) provide voting rights to preferred stockholders 
E) include a preemptive right in the preferred stock issue 
A) pay accumulated dividends to the common stockholders 
B) issue the stock at par value at the time of issue 
C) incorporate a call provision in the preferred stock issue 
D) provide voting rights to preferred stockholders 
E) include a preemptive right in the preferred stock issue

Question 11

Changes in stock prices occur because investors change the rates of return they require to invest in stocks and/or the expectations about the cash flows associated with stocks change.

Accepted Answer

A) True 
 B)False

Question 12

In the economic value added (EVA) equation, the _____ is subtracted from the after-tax operating income to determine the EVA.

Accepted Answer

A) marginal tax 
B) operating cash flows 
C) current intrinsic value 
D) average cost of invested capital 
E) total capital invested 
A) marginal tax 
B) operating cash flows 
C) current intrinsic value 
D) average cost of invested capital 
E) total capital invested

Question 13

A convertible preferred stock can be exchanged for a certain number of shares of common stock at the _____.

Accepted Answer

A) par value 
B) conversion price 
C) discount rate 
D) capital gain rate 
E) premium price 
A) par value 
B) conversion price 
C) discount rate 
D) capital gain rate 
E) premium price

Question 14

A share of a preferred stock pays a quarterly dividend of $2.50. If the price of this preferred stock is currently $50, what is the simple annual rate of return?

Accepted Answer

A) 12% 
B) 18% 
C) 20% 
D) 23% 
E) 28% 
A) 12% 
B) 18% 
C) 20% 
D) 23% 
E) 28%

Question 15

Which of the following is true of the call provision found in preferred stocks?

Accepted Answer

A) The call provision gives preferred stockholders the right to both elect the members of the board of directors and call for votes on corporate issues. 
B) The call provision gives preferred stockholders priority over common stockholders with regard to ownership of the assets of the firm. 
C) The call provision gives preferred stockholders the right to receive preferred dividends that were not paid in previous years before any common stock dividends can be paid. 
D) The call provision gives the issuing firm right to redeem its preferred stock by incorporating a maturity option in the issue. 
E) The call provision gives preferred stock the right to participate with the common stock in a firm's earnings. 
A) The call provision gives preferred stockholders the right to both elect the members of the board of directors and call for votes on corporate issues. 
B) The call provision gives preferred stockholders priority over common stockholders with regard to ownership of the assets of the firm. 
C) The call provision gives preferred stockholders the right to receive preferred dividends that were not paid in previous years before any common stock dividends can be paid. 
D) The call provision gives the issuing firm right to redeem its preferred stock by incorporating a maturity option in the issue. 
E) The call provision gives preferred stock the right to participate with the common stock in a firm's earnings.

Question 16

Which of the following is true about the change in a stock price?

Accepted Answer

A) If investors demand higher returns to invest in stocks, then stock prices should increase. 
B) If investors demand lower returns to invest in stocks, then stock prices should fall. 
C) If investors demand higher returns to invest in stocks, then stock prices should fall. 
D) If investors expect their investments to generate lower future cash flows, then stock prices should increase. 
E) If investors expect their investments to generate higher future cash flows, then stock prices should fall. 
A) If investors demand higher returns to invest in stocks, then stock prices should increase. 
B) If investors demand lower returns to invest in stocks, then stock prices should fall. 
C) If investors demand higher returns to invest in stocks, then stock prices should fall. 
D) If investors expect their investments to generate lower future cash flows, then stock prices should increase. 
E) If investors expect their investments to generate higher future cash flows, then stock prices should fall.

Question 17

Which of the following is true about the price-earnings (P/E) ratio of a firm?

Accepted Answer

A) The higher the P/E ratio, the less investors are willing to pay for each dollar earned by the firm. 
B) If a firm's P/E ratio is 8, then, it would take 8 years for an investor to double his or her initial investment. 
C) The appropriate value of P/E ratio is multiplied by the earnings per share (EPS) to estimate the appropriate stock price. 
D) If a company's P/E ratio is too high relative to that of similar firms, its earnings have not been fully captured in the existing stock value. 
E) If the firm's P/E ratio is too low relative to that of similar firms, it means that the market has overvalued its current earnings. 
A) The higher the P/E ratio, the less investors are willing to pay for each dollar earned by the firm. 
B) If a firm's P/E ratio is 8, then, it would take 8 years for an investor to double his or her initial investment. 
C) The appropriate value of P/E ratio is multiplied by the earnings per share (EPS) to estimate the appropriate stock price. 
D) If a company's P/E ratio is too high relative to that of similar firms, its earnings have not been fully captured in the existing stock value. 
E) If the firm's P/E ratio is too low relative to that of similar firms, it means that the market has overvalued its current earnings.

Question 18

According to the convertibility provision, a common stock can be converted to a certain number of shares of preferred stock at the stated conversion price.

Accepted Answer

A) True 
 B)False

Question 19

A proxy fight is an attempt by a group to overthrow the current management team and take control of a business by soliciting stockholders' proxy votes.

Accepted Answer

A) True 
 B)False

Question 20

A shareholder can transfer the right to vote to another person by means of an instrument known as _____.

Accepted Answer

A) arbitrage 
B) allotment 
C) consortium 
D) rationing 
E) proxy 
A) arbitrage 
B) allotment 
C) consortium 
D) rationing 
E) proxy

Which of the following is true of founders' shares?

Which of the following represents the minimum legal financial obligation of a common stockholder if a firm is liquidated and additional funds are needed to repay its debt?

What action would the management take if it wants to gain more ownership control of the firm?

If a preferred stock issue has a conversion feature, the stock can be converted into _____.

On January 1 of the current year, the price of a stock is $42.50, whereas on December 31 of the current year, the price of the stock is $48.78. Determine the capital gain yield of the stock.

Certificates that represent ownership in stocks of foreign companies and are held in trusts at banks located in the countries where the stocks are traded are called _____.

American depository receipts (ADRs) are foreign stocks listed on stock exchanges located outside the country where the firms are headquartered.

Which of the following types of securities is referred to as a hybrid security?

Which of the following stocks is a nonvoting stock and is referred to as hybrid stock?

If a firm wants to be able to redeem some of its preferred stock at some date after issue, it must _____.

Changes in stock prices occur because investors change the rates of return they require to invest in stocks and/or the expectations about the cash flows associated with stocks change.

In the economic value added (EVA) equation, the _____ is subtracted from the after-tax operating income to determine the EVA.

A convertible preferred stock can be exchanged for a certain number of shares of common stock at the _____.

A share of a preferred stock pays a quarterly dividend of $2.50. If the price of this preferred stock is currently $50, what is the simple annual rate of return?

Which of the following is true of the call provision found in preferred stocks?

Which of the following is true about the change in a stock price?

Which of the following is true about the price-earnings (P/E) ratio of a firm?

According to the convertibility provision, a common stock can be converted to a certain number of shares of preferred stock at the stated conversion price.

A proxy fight is an attempt by a group to overthrow the current management team and take control of a business by soliciting stockholders' proxy votes.

A shareholder can transfer the right to vote to another person by means of an instrument known as _____.

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debt Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters

Exam 7: Stocks Equity Characteristics and Valuation

Which of the following is true of founders' shares?

Which of the following represents the minimum legal financial obligation of a common stockholder if a firm is liquidated and additional funds are needed to repay its debt?

What action would the management take if it wants to gain more ownership control of the firm?

If a preferred stock issue has a conversion feature, the stock can be converted into _____.

On January 1 of the current year, the price of a stock is $42.50, whereas on December 31 of the current year, the price of the stock is $48.78. Determine the capital gain yield of the stock.

Certificates that represent ownership in stocks of foreign companies and are held in trusts at banks located in the countries where the stocks are traded are called _____.

American depository receipts (ADRs) are foreign stocks listed on stock exchanges located outside the country where the firms are headquartered.

Which of the following types of securities is referred to as a hybrid security?

Which of the following stocks is a nonvoting stock and is referred to as hybrid stock?

If a firm wants to be able to redeem some of its preferred stock at some date after issue, it must _____.

Changes in stock prices occur because investors change the rates of return they require to invest in stocks and/or the expectations about the cash flows associated with stocks change.

In the economic value added (EVA) equation, the _____ is subtracted from the after-tax operating income to determine the EVA.

A convertible preferred stock can be exchanged for a certain number of shares of common stock at the _____.

A share of a preferred stock pays a quarterly dividend of $2.50. If the price of this preferred stock is currently $50, what is the simple annual rate of return?

Which of the following is true of the call provision found in preferred stocks?

Which of the following is true about the change in a stock price?

Which of the following is true about the price-earnings (P/E) ratio of a firm?

According to the convertibility provision, a common stock can be converted to a certain number of shares of preferred stock at the stated conversion price.

A proxy fight is an attempt by a group to overthrow the current management team and take control of a business by soliciting stockholders' proxy votes.

A shareholder can transfer the right to vote to another person by means of an instrument known as _____.

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debt Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters