Question 1

An ECN is best described as:

Accepted Answer

A) an electronic network which transmits orders directly to the floor of the NYSE. 
B) the network used in the primary market for selling newly issued shares. 
C) the international trading network of the NYSE. 
D) a website that allows individual investors to trade directly with one another. 
E) a computerized network used by independent brokers. 
A) an electronic network which transmits orders directly to the floor of the NYSE. 
B) the network used in the primary market for selling newly issued shares. 
C) the international trading network of the NYSE. 
D) a website that allows individual investors to trade directly with one another. 
E) a computerized network used by independent brokers. D

Question 2

You are the sole shareholder of a small corporation.Presently,you wish to diversify your holdings and thus want to sell a portion of your shares but do not want to incur the costs associated with SEC filings.Which one of the following markets,if any,might be conducive to this sale?

Accepted Answer

A) NASDAQ 
B) OTCBB 
C) Pink Sheets 
D) NYSE 
A) NASDAQ 
B) OTCBB 
C) Pink Sheets 
D) NYSE C

Question 3

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

Accepted Answer

A) Commission brokers work on behalf of brokerage firm clients. 
B) Shareholders of NYSE Group, Inc. own "seats" on the exchange. 
C) Specialists buy at the asked price. 
D) The NYSE is primarily a dealer's market. 
E) Floor brokers earn income in the form of a bid-ask spread. 
A) Commission brokers work on behalf of brokerage firm clients. 
B) Shareholders of NYSE Group, Inc. own "seats" on the exchange. 
C) Specialists buy at the asked price. 
D) The NYSE is primarily a dealer's market. 
E) Floor brokers earn income in the form of a bid-ask spread. A

Question 4

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 5

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 6

Northern Gas recently paid a $2.80 annual dividend on its common stock.This dividend increases at an average rate of 3.8 percent per year.The stock is currently selling for $26.91 a share.What is the market rate of return?

Accepted Answer

A) 13.88 percent 
B) 14.03 percent 
C) 14.21 percent 
D) 14.37 percent 
E) 14.60 percent 
A) 13.88 percent 
B) 14.03 percent 
C) 14.21 percent 
D) 14.37 percent 
E) 14.60 percent

Question 7

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 decrease 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 decrease in value.

Question 8

Electronics,Inc.common stock returned a nifty 23.5 percent rate of return last year.The dividend amount was $0.25 a share which equated to a dividend yield of 0.95 percent.What was the rate of price appreciation for the year?

Accepted Answer

A) 22.55 percent 
B) 23.38 percent 
C) 23.60 percent 
D) 23.87 percent 
E) 23.52 percent 
A) 22.55 percent 
B) 23.38 percent 
C) 23.60 percent 
D) 23.87 percent 
E) 23.52 percent

Question 9

Callander Enterprises stock is listed on NASDAQ.The firm is planning to issue some new equity shares for sale to the general public.This sale will occur in which one of the following markets?

Accepted Answer

A) private 
B) auction 
C) exchange floor 
D) secondary 
E) primary 
A) private 
B) auction 
C) exchange floor 
D) secondary 
E) primary

Question 10

The common stock of Textile Mills pays an annual dividend of $1.65 a share.The company has promised to maintain a constant dividend even though economic times are tough.How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return?

Accepted Answer

A) $13.75 
B) $14.01 
C) $14.56 
D) $14.79 
E) $15.23 
A) $13.75 
B) $14.01 
C) $14.56 
D) $14.79 
E) $15.23

Question 11

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

Accepted Answer

A) dual class 
B) cumulative 
C) non-cumulative 
D) preferred 
E) common 
A) dual class 
B) cumulative 
C) non-cumulative 
D) preferred 
E) common

Question 12

You are an accountant and have been analyzing the financial statements of Euro Place Markets,which is a foreign retailer.While the firm's financials are not prepared according to GAAP,you have still been able to understand the firm's accounting practices and feel that this firm has a bright future.On which one of the following U.S.markets,if any,might you be able to purchase shares in this firm?

Accepted Answer

A) NYSE. 
B) NASDAQ. 
C) OTCBB. 
D) Pink Sheets. 
E) No U.S. market will list this foreign security. 
A) NYSE. 
B) NASDAQ. 
C) OTCBB. 
D) Pink Sheets. 
E) No U.S. market will list this foreign security.

Question 13

Jen's Fashions is growing quickly.Dividends are expected to grow at a 19 percent rate for the next 3 years,with the growth rate falling off to a constant 8 percent thereafter.The required return is 12 percent and the company just paid a $3.80 annual dividend.What is the current share price?

Accepted Answer

A) $128.96 
B) $131.11 
C) $135.95 
D) $148.87 
E) $152.20 
A) $128.96 
B) $131.11 
C) $135.95 
D) $148.87 
E) $152.20

Question 14

Last year,Hansen Delivery paid an annual dividend of $3.20 per share.The company has been reducing the dividends by 10 percent annually.How much are you willing to pay to purchase stock in this company if your required rate of return is 13 percent?

Accepted Answer

A) $1.92 
B) $7.87 
C) $12.52 
D) $21.16 
E) $24.08 
A) $1.92 
B) $7.87 
C) $12.52 
D) $21.16 
E) $24.08

Question 15

National Warehousing just announced it is increasing its annual dividend to $1.18 next year and establishing a policy whereby the dividend will increase by 3.25 percent annually thereafter.How much will one share of this stock be worth 8 years from now if the required rate of return is 9.5 percent?

Accepted Answer

A) $24.38 
B) $25.68 
C) $26.51 
D) $27.02 
E) $27.37 
A) $24.38 
B) $25.68 
C) $26.51 
D) $27.02 
E) $27.37

Question 16

Big Falls Tours just paid a dividend of $1.55 per share.The dividends are expected to grow at 30 percent for the next 8 years and then level off to a 6 percent growth rate indefinitely.What is the price of this stock today given a required return of 15 percent?

Accepted Answer

A) $67.54 
B) $69.90 
C) $70.47 
D) $71.07 
E) $78.19 
A) $67.54 
B) $69.90 
C) $70.47 
D) $71.07 
E) $78.19

Question 17

Roy's Welding Supplies common stock sells for $38 a share and pays an annual dividend that increases by 3 percent annually.The market rate of return on this stock is 8.20 percent.What is the amount of the last dividend paid?

Accepted Answer

A) $1.80 
B) $1.86 
C) $1.92 
D) $1.98 
E) $2.10 
A) $1.80 
B) $1.86 
C) $1.92 
D) $1.98 
E) $2.10

Question 18

A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a:

Accepted Answer

A) floor trader. 
B) floor post. 
C) specialist. 
D) floor broker. 
E) commission broker. 
A) floor trader. 
B) floor post. 
C) specialist. 
D) floor broker. 
E) commission broker.

Question 19

The next dividend payment by Hillside Markets will be $2.35 per share.The dividends are anticipated to maintain a 4.5 percent growth rate forever.The stock currently sells for $65 per share.What is the dividend yield?

Accepted Answer

A) 3.20 percent 
B) 3.62 percent 
C) 3.81 percent 
D) 4.50 percent 
E) 4.81 percent 
A) 3.20 percent 
B) 3.62 percent 
C) 3.81 percent 
D) 4.50 percent 
E) 4.81 percent

Question 20

Which one of the following is computed by dividing next year's annual dividend by the current stock price?

Accepted Answer

A) yield to maturity 
B) total yield 
C) dividend yield 
D) capital gains yield 
E) growth rate 
A) yield to maturity 
B) total yield 
C) dividend yield 
D) capital gains yield 
E) growth rate

Exam 8: Stock Valuation

An ECN is best described as:

You are the sole shareholder of a small corporation.Presently,you wish to diversify your holdings and thus want to sell a portion of your shares but do not want to incur the costs associated with SEC filings.Which one of the following markets,if any,might be conducive to this sale?

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

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

Northern Gas recently paid a $2.80 annual dividend on its common stock.This dividend increases at an average rate of 3.8 percent per year.The stock is currently selling for $26.91 a share.What is the market rate of return?

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:

Electronics,Inc.common stock returned a nifty 23.5 percent rate of return last year.The dividend amount was $0.25 a share which equated to a dividend yield of 0.95 percent.What was the rate of price appreciation for the year?

Callander Enterprises stock is listed on NASDAQ.The firm is planning to issue some new equity shares for sale to the general public.This sale will occur in which one of the following markets?

The common stock of Textile Mills pays an annual dividend of $1.65 a share.The company has promised to maintain a constant dividend even though economic times are tough.How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return?

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

Jen's Fashions is growing quickly.Dividends are expected to grow at a 19 percent rate for the next 3 years,with the growth rate falling off to a constant 8 percent thereafter.The required return is 12 percent and the company just paid a $3.80 annual dividend.What is the current share price?

Last year,Hansen Delivery paid an annual dividend of $3.20 per share.The company has been reducing the dividends by 10 percent annually.How much are you willing to pay to purchase stock in this company if your required rate of return is 13 percent?

National Warehousing just announced it is increasing its annual dividend to $1.18 next year and establishing a policy whereby the dividend will increase by 3.25 percent annually thereafter.How much will one share of this stock be worth 8 years from now if the required rate of return is 9.5 percent?

Big Falls Tours just paid a dividend of $1.55 per share.The dividends are expected to grow at 30 percent for the next 8 years and then level off to a 6 percent growth rate indefinitely.What is the price of this stock today given a required return of 15 percent?

Roy's Welding Supplies common stock sells for $38 a share and pays an annual dividend that increases by 3 percent annually.The market rate of return on this stock is 8.20 percent.What is the amount of the last dividend paid?

A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a:

The next dividend payment by Hillside Markets will be $2.35 per share.The dividends are anticipated to maintain a 4.5 percent growth rate forever.The stock currently sells for $65 per share.What is the dividend yield?

Which one of the following is computed by dividing next year's annual dividend by the current stock price?

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