Question 1

Which one of the following is the electronic system used by the NYSE for directly transmitting orders to specialists?

Accepted Answer

A) OTCDOT 
B) SuperDOT 
C) Instinet 
D) Internet 
E) Floornet

Question 2

Which one of the following is an underlying assumption of the dividend growth model?

Accepted Answer

A) A stock has the same value to every investor. 
B) A stock's value is equal to the discounted present value of the future cash flows which it generates. 
C) A stock's value changes in direct relation to the required return. 
D) Stocks that pay the same annual dividend have equal market values. 
E) The dividend growth rate is inversely related to a stock's market price.

Question 3

Renew It,Inc.,is preparing to pay its first dividend.It is going to pay $0.45,$0.60,and $1 a share over the next three years,respectively.After that,the company has stated that the annual dividend will be $1.25 per share indefinitely.What is this stock worth to you per share if you demand a 10.8 percent rate of return on stocks of this type?

Accepted Answer

A) $6.67 
B) $8.21 
C) $10.14 
D) $11.47 
E) $12.03

Question 4

Which one of the following players on the floor of the NYSE can be likened to part-time help because they are called to duty only when others are fully employed?

Accepted Answer

A) floor trader 
B) specialist 
C) dealer 
D) floor broker 
E) commission broker

Question 5

Hardwoods,Inc.is a mature manufacturing firm.The company just paid a $10 dividend,but management expects to reduce the payout by 9 percent each year,indefinitely.How much are you willing to pay today per share to buy this stock if you require a 15 percent rate of return?

Accepted Answer

A) $34.79 
B) $37.92 
C) $38.27 
D) $41.33 
E) $42.09

Question 6

Shares of Hot Donuts common stock are currently selling for $32.35.The last annual dividend paid was $1.25 per share and the market rate of return is 10.7 percent.At what rate is the dividend growing?

Accepted Answer

A) 6.58 percent 
B) 8.67 percent 
C) 10.42 percent 
D) 12.60 percent 
E) 14.10 percent

Question 7

What are the distributions to shareholders by a corporation called?

Accepted Answer

A) retained earnings 
B) net income 
C) dividends 
D) capital payments 
E) diluted profits

Question 8

Chemical Mines has 5,000 shareholders and is preparing to elect two new board members. You do not own enough shares to personally control the elections but are determined to oust the current leadership.Likewise,no other single shareholder owns sufficient shares to personally control the outcome of the election.Which one of the following is the most likely outcome of this situation given that some shareholders are happy with the existing management?

Accepted Answer

A) negotiated settlement where each side is granted control over one of the open seats 
B) protracted legal battle over control of the board of directors 
C) arbitrated settlement where the arbitrator determines who will be elected to the board 
D) control of the board decided without your influence 
E) proxy fight for control of the board

Question 9

Which one of following is the rate at which a stock's price is expected to appreciate?

Accepted Answer

A) current yield 
B) total return 
C) dividend yield 
D) capital gains yield 
E) coupon rate

Question 10

Ted,a wealthy individual,plans to purchase 30 percent of a firm's Class A shares of outstanding stock.He believes that such a purchase will allow him to control the firm by electing his candidates to the board over time as current board member's terms expire.The firm has a cumulative voting process.What factors should Ted be considering and why to ensure he can gain the control he desires?

Accepted Answer

The answer of Ted,a wealthy individual,plans to purchase 30 percent...

Question 11

What are the primary differences and similarities between NASDAQ and the NYSE?

Accepted Answer

The answer of What are the primary differences and similarities...

Question 12

A securities market primarily comprised of dealers who buy and sell for their own inventories is referred to which type of market?

Accepted Answer

A) auction 
B) private 
C) over-the-counter 
D) regional 
E) electronic network

Question 13

High Country Builders currently pays an annual dividend of $1.35 and plans on increasing that amount by 2.5 percent each year.Valley High Builders currently pays an annual dividend of $1.20 and plans on increasing its dividend by 3 percent annually.Given this information,you know for certain that the stock of High Country Builders' has a higher ______ than the stock of Valley High Builders.

Accepted Answer

A) market price. 
B) dividend yield. 
C) capital gains yield. 
D) total return. 
E) The answer cannot be determined based on the information provided.

Question 14

The secondary market is best defined by which one of the following?

Accepted Answer

A) market in which subordinated shares are issued and resold 
B) market conducted solely by brokers 
C) market dominated by dealers 
D) market where outstanding shares of stock are resold 
E) market where warrants are offered and sold

Question 15

Hardy Lumber has a capital structure which includes bonds,preferred stock,and common stock. Which of the following rights have most likely been granted to the preferred shareholders?
I.right to share in company profits prior to other shareholders
II.right to elect the corporate directors
III.right to vote on proposed mergers
IV.right to all residual income after the common dividends have been paid

Accepted Answer

A) I only 
B) I and III only 
C) I and IV only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 16

Denver Shoppes will pay an annual dividend of $1.46 a share next year with future dividends increasing by 4.2 percent annually.What is the market rate of return if the stock is currently selling for $42.10 a share?

Accepted Answer

A) 6.55 percent 
B) 7.13 percent 
C) 7.46 percent 
D) 7.67 percent 
E) 8.29 percent

Question 17

Which of the following apply to a specialist who trades on the floor of the NYSE?
I.provides liquidity for an individual security
II.partially being replaced by SuperDOT
III.pays an annual fee for a trading license
IV.acts as a dealer

Accepted Answer

A) I and III only 
B) II and IV only 
C) I, III, and IV only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 18

Which one of the following statements applies to NASDAQ?

Accepted Answer

A) a partner with the London exchange 
B) exchange floor is located in Chicago 
C) single market maker for each listed security 
D) broker's market 
E) comprised of three separate markets

Question 19

Combined Communications is a new firm in a rapidly growing industry.The company is planning on increasing its annual dividend by 15 percent a year for the next 4 years and then decreasing the growth rate to 3.5 percent per year.The company just paid its annual dividend in the amount of $0.20 per share.What is the current value of one share of this stock if the required rate of return is 15.5 percent?

Accepted Answer

A) $1.82 
B) $2.04 
C) $2.49 
D) $2.71 
E) $3.05

Question 20

Westover Winds just paid a dividend of $2.10 per share.The company will increase its dividend by 8 percent next year and will then reduce its dividend growth rate by 2 percentage points per year until it reaches the industry average of 2 percent dividend growth,after which the company will keep a constant growth rate forever.What is the price of this stock today given a required return of 11 percent?

Accepted Answer

A) $26.54 
B) $28.99 
C) $31.83 
D) $32.06 
E) $32.47

Exam 8: Stock Valuation