question

common

answer

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?
Dual class.
Cumulative.
Non-cumulative.
Preferred.
Common.

question

dividends

answer

What are the distributions of either cash or stock to shareholders by a corporation called?
Coupon payments.
Retained earnings.
Dividends.
Capital payments.
Diluted profits.

question

dealer

answer

An agent who maintains an inventory from which he or she buys and sells securities is called a:
Broker.
Trader.
Capitalist.
Principal.
Dealer.

question

designated market maker.

answer

A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a:
Floor trader.
Floor post.
designated market maker.
Floor broker.
Commission broker.

question

SuperDOT.

answer

Which one of the following is the electronic system used by the NYSE for directly transmitting orders to specialists?
DMM post.
SuperDOT.
DMM.
SLP.
OrderNET.

question

Over-the-counter.

answer

A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market?
Auction.
Private.
Over-the-counter.
Regional.
Insider.

question

Requires the growth rate to be less than the required return.

answer

The constant dividend growth model:
Assumes dividends increase at a decreasing rate.
Only values stocks at Time 0.
Cannot be used to value constant dividend stocks.
Can be used to value both dividend-paying and non-dividend-paying stocks.
Requires the growth rate to be less than the required return.

question

Is unsustainable over the long term.

answer

Supernormal growth is a growth rate that:
Is both positive and follows a year or more of negative growth.
Exceeds a firm's previous year's rate of growth.
Is generally constant for an infinite period of time.
Is unsustainable over the long term.
Applies to a single, abnormal year.

question

The stock has a negative capital gains yield.

answer

Winston Co. has a dividend-paying stock with a total return for the year of -6.5 percent. Which one of the following must be true?
The dividend must be constant.
The stock has a negative capital gains yield.
The dividend yield must be zero.
The required rate of return for this stock increased over the year.
The firm is experiencing supernormal growth.

question

Dividend payments that increase by 10 percent per year for five years followed by dividends that increase by 3 percent annually thereafter

answer

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?
No dividends for five years, then increasing dividends forever
$1 per share annual dividend for two years, then $1.25 annual dividends forever
Decreasing dividends for six years followed by one final liquidating dividend payment
Dividends payments that increase by 2, 3, and 4 percent respectively for three years followed by a constant dividend thereafter
Dividend payments that increase by 10 percent per year for five years followed by dividends that increase by 3 percent annually thereafter

question

50 percent plus one vote

answer

The Blue Marlin is owned by a group of five shareholders who all vote independently and who all want personal control over the firm. What is the minimum percentage of the outstanding shares one of these shareholders must own if he or she is to gain personal control over this firm given that the firm uses straight voting?
17 percent
20 percent plus one vote
25 percent plus one vote
50 percent plus one vote
51 percent

question

Right to share in company profits prior to other shareholders.

answer

Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders?
Right to share in company profits prior to other shareholders.
Right to elect the corporate directors.
Right to vote on proposed mergers.
Right to all residual income after the common dividends have been paid.
Right to a permanent seat on the board of directors.

question

Computer network of securities dealers.

answer

Which one of the following best describes NASDAQ?
Largest U.S. stock market in terms of dollar trading volume.
Dealer price at which they will buy is listed as the asked price.
Market where the DMM's are located at posts.
Computer network of securities dealers.
Market with three physical trading floors.

question

$26.94
P0 = $3.30 / (.15 - .0275) = $26.94

answer

Future Motors is expected to pay a $3.30 a share annual dividend next year. Dividends are expected to increase by 2.75 percent annually. What is one share of this stock worth to you today if your required rate of return is 15 percent?
$25.06
$26.30
$24.56
$26.94
$27.59

question

7.43 percent
R = $2.28 / $43.19 + .0215 = .0743, or 7.43 percent

answer

The common stock of Dayton Repair sells for $43.19 a share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The firm has established a pattern of increasing its dividends by 2.15 percent annually and expects to continue doing so. What is the market rate of return on this stock?
7.59 percent
7.43 percent
7.67 percent
7.14 percent
7.28 percent

question

$41.74
P4 = [$3.45 Γ(1 + .045)5] / (.148 - .045) = $41.74

answer

The UpTowner just paid a $3.45 annual dividend. The company has a policy of increasing the dividend by 4.5 percent annually. You would like to purchase 100 shares of stock in this firm but realize that you will not have the funds to do so for another four years. If you require a 14.8 percent rate of return, how much will you be willing to pay per share for the 100 shares when you can afford to make this investment?
$42.50
$41.74
$43.12
$38.78
$44.47

question

$22.57
P10 = [$1.68 οΏ½(1 + .10325)10] / (.135 - .0325) = $22.57

answer

Global Logistics just announced it is increasing its annual dividend to $1.68 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 ten years from now if the required rate of return is 13.5 percent?
$22.57
$21.68
$26.51
$27.02
$27.37

question

7.76 percent
$41.04 = [($1.31 Γ(1 + g)] / (.112 - g)
g = .0776, or 7.76 percent

answer

Hot Teas common stock is currently selling for $41.04. The last annual dividend paid was $1.31 per share and the market rate of return is 11.2 percent. At what rate is the dividend growing?
7.76 percent
6.67 percent
8.42 percent
8.60 percent
6.10 percent

question

$2.49
P4 = [$.20 Γ(1 + .15)4 Γ(1 + .035)] / (.155 - .035) = $3.017
P0 = {[$.20 Γ(1 + .15)] / (.155 - .15)} Γ{1 - [(1 + .15) / (1 + .155)]4} + $3.017 / (1 + .155)4 = $2.49

answer

Global Tek 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 four years and then decreasing the growth rate to 3.5 percent per year. The company just paid its annual dividend in the amount of $.20 per share. What is the current value of one share of this stock if the required rate of return is 15.5 percent?
$1.82
$2.04
$2.49
$2.71
$3.05

question

$3.56
P4 = $.75 / .138 = $5.4348
P0 = $.25 / (1 + .138)3 + ($.25 + 5.4348) / (1 + .138)4 = $3.56

answer

New Products pays no dividend at the present time. Starting in Year 3, the firm will pay a $.25 dividend per share for two years. After that, the company plans on paying a constant $.75 a share annual dividend indefinitely. How much should you pay per share to purchase this stock today at a required return of 13.8 percent?
$3.78
$3.56
$4.37
$4.71
$4.98

question

$15.19
P0 = $1.25 / (1 + .17)1 + $1.25 / (1 + .17)3 + $25 / (1 + .17)4 = $15.19

answer

Home Parties is paying an annual dividend of $1.25 every other year. The last dividend was paid last year. The firm will continue this policy until two more dividend payments have been paid. One year after the last normal dividend payment, the company plans to pay a final liquidating dividend of $25 per share. What is the current market value of this stock if the required return is 17 percent?
$18.92
$15.19
$13.16
$17.14
$17.53

question

11.52 percent
R = $6.75 / $58.60 = 11.52 percent

answer

A preferred stock pays an annual dividend of $6.75 and sells for $58.60 a share. What is the rate of return on this security?
9.38 percent
9.63 percent
11.52 percent
10.72 percent
11.84 percent

question

$15.61
P5 = [$1.46 Γ(1 + .035)6] / ( .15 - .035) = $15.61

answer

The Grist Mill just paid a dividend of $1.46 per share on its stock. The dividends are expected to grow at a constant rate of 3.5 percent per year, indefinitely. What will the price of this stock be in 5 years if investors require an annual return of 15 percent?
$15.08
$15.24
$15.83
$15.61
$15.33

question

$16.74
P5 = [$2.10 Γ(1 + .024)5 Γ(1 + .02)] / (.15 - .02) = $18.55
P0 = [($2.10 Γ(1 + .024)] / (.15 - .024) Γ{1 - [(1 + .024) / (1 + .15)]5} + $18.55 / (1 + .15)5 = $16.74

answer

AC Electric just paid a $2.10 per share annual dividend. The firm pledges to increase its dividend by 2.4 percent for the next 5 years and then maintain a constant 2 percent rate of dividend growth. If the required return is 15 percent, what is the current value of one share of this stock?
$25.07
$23.09
$22.22
$18.47
$16.74

question

$46.55
P3 = [$3.80 Γ(1 + .15)3 Γ(1 + .05] / (.16 - .05) = $55.17
P0 = [$3.80 Γ (1 + .15)] / (.16 - .15) Γ {1 - [(1 + .15) / (1 + .16)]3} + $55.17 / (1 + .16)3 = $46.55

answer

K's Fashions is growing quickly. Dividends are expected to increase by 15 percent annually for the next three years, with the growth rate falling off to a constant 5 percent thereafter. The required return is 16 percent and the company just paid a $3.80 annual dividend. What is the current share price?
$28.96
$31.11
$46.55
$48.87
$52.20