Exam 8: Stock Markets

As of December 2005,trading licenses are required to conduct trades on the floor of the NYSE. Which of the following statements about these trading licenses is/are correct? I. Licenses are auctioned off in a special type of auction called a Dutch auction. II. Only a member organization of the NYSE is eligible to bid for a trading license. III. The SEC determines the maximum bid price. IV. Trading licenses are good for 10 years.

An investor has a 38 percent ordinary income tax rate and a 20 percent long-term capital gains tax rate. The investor holds stock in a firm that could pay its usual $1 per share dividend or reinvest the cash in the firm. The stock price is currently $30 per share. If the firm does not pay the dividend,the share price will rise. If it pays the dividend,the share price will stay the same. By how much must the share price rise if the dividend is not paid in order to make the investor indifferent between receiving the dividend or not?

Suppose that over the last 10 to 15 years significantly large numbers of investors have been able to earn abnormal returns from using the firm's publicly available financial information to forecast growth in earnings and dividends. This would be evidence that the markets are not I. weak form efficient. II. semi-strong form efficient. III. strong form efficient.

Which of the following information is NOT usually found in a Wall Street Journal stock quote?

With ________ voting,all directors up for election are voted on by the shareholders at the same time in one general election.

You own 500 shares of common stock in a firm that has two million shares outstanding. The firm announces a plan to sell an additional 500,000 shares through a rights offering. A) How many rights to purchase new shares will you receive? B) Suppose that the market price per share is $30,but each right allows you to purchase a share of stock for $27. What should be the value of one right? C) If you sold your rights,how much money should you make?

According to the strong form of efficient market hypothesis:

A firm desires to sell stock to the public. The underwriter charges $0.45 million in fees and offers to buy six million shares from the firm at a price of $35 per share. In addition,registration and audit fees total $130,000,and marketing and miscellaneous fees add up to another $75,000. The underwriter expects to earn gross proceeds per share of $38. What is the issuing firm's out-of-pocket dollar transaction cost to issue the stock? Immediately after the stock was issued,the stock price rose to $40. What is the issuing firm's opportunity cost? What is the total issuance cost,including opportunity costs,as a percentage of the total funds available to the issuing firm?

NYSE listing has traditionally benefited a firm by

A publicly traded company gave its existing shareholders the opportunity to purchase from the new stocks that it will issue. The existing shareholders can purchase 3 new shares at a price of $10 per share for every 8 shares held. This is an example of:

The stamp on a prospectus accompanying a new issue that indicates the issue has not yet been approved for sale by the SEC is called the

As a small (minority)stockholder would you prefer to have cumulative voting or straight voting shares? As a majority shareholder?

International stock markets provide the potential of diversification to the investor.

What are the major effects of the Sarbanes-Oxley Act (SOX)of 2002 on the stock markets? What else has the NYSE done to improve corporate governance?

The largest single type of holder of common stock ($)is

Compared to the market order,a limit order may not be executed if the market is moving fast.

If the net proceeds are greater than the gross proceeds in an underwritten offering,then

In 2007 the NYSE merged with ________.

On the NASDAQ system,the inside quotes are the

A long-term investor in a high marginal tax bracket will normally prefer a dollar of capital gain to a dollar of dividend yield.