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| 1 | |
A firm must make its dividend payments to preferred shareholders before it makes any interest payments to its bondholders. |
| | A) | True |
| | B) | False |
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| 2 | |
Most preferred stock has dividends that are cumulative. |
| | A) | True |
| | B) | False |
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| 3 | |
According to the constant growth model, the dividend yield is equal to the required return minus the dividend growth rate. |
| | A) | True |
| | B) | False |
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| 4 | |
The NASDAQ acts as both a primary market and a secondary market for shares of stock. |
| | A) | True |
| | B) | False |
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| 5 | |
A broker and a dealer are the same thing. |
| | A) | True |
| | B) | False |
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| 6 | |
Over the past four years, a company has paid dividends of $1.00, $1.10, $1.20, and $1.30 respectively. This pattern is expected to continue into the future. This is an example of a company paying a: |
| | A) | dividend that grows by 10 percent each year. |
| | B) | dividend that grows at a constant rate. |
| | C) | dividend that grows by a decreasing amount. |
| | D) | dividend that grows at a decreasing rate. |
| | E) | preferred stock dividend. |
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| 7 | |
You are considering investing in a firm and wish to place a value on the common stock. The dividend on the firm's stock has not changed in the last five years. Absent any information suggesting future changes in the dividend rate, the most appropriate stock valuation model would be the _____ model. |
| | A) | zero growth |
| | B) | constant growth |
| | C) | nonconstant growth |
| | D) | growing perpetuity |
| | E) | bond pricing |
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| 8 | |
The dividend yield on a stock is similar to the current yield on a bond in that both: |
| | A) | represent how much each security's price will increase in a year. |
| | B) | incorporate the par value into their computation. |
| | C) | represent the security's annual income divided by its price. |
| | D) | are quarterly yields that must be annualized. |
| | E) | are an accurate representation of the annual return an investor can expect to earn by owning the security. |
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| 9 | |
Which one of the following is true about the differences between debt and common stock? |
| | A) | Debt is ownership in a firm but equity is not. |
| | B) | Creditors have voting power while stockholders do not. |
| | C) | Periodic payments made to either class of security are tax deductible for the issuer. |
| | D) | Interest payments are promised while dividend payments are not. |
| | E) | Both stockholders and bondholders have voting privileges. |
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| 10 | |
Which one of the following is a violation of the rights of one or more classes of a firm's stakeholders? |
| | A) | paying common dividends when preferred dividends are in arrears |
| | B) | paying preferred shareholders before common shareholders in a liquidation |
| | C) | allowing preferred shareholders to place members on the board of directors when their dividends have not been paid for some time |
| | D) | allowing common shareholders to vote by proxy when they are unable to attend a shareholders' meeting in person |
| | E) | paying creditors before preferred shareholders in a liquidation |
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| 11 | |
Which one of the following has lost the most importance in recent years because of the SuperDOT system of trading? |
| | A) | commission broker |
| | B) | specialist |
| | C) | floor broker |
| | D) | floor trader |
| | E) | market maker |
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| 12 | |
Suppose you own 250 shares of MIKO common stock. Two directors are to be elected. Since the firm uses cumulative voting, you can cast as many as _____ votes for a single director. |
| | A) | 125 |
| | B) | 250 |
| | C) | 500 |
| | D) | 750 |
| | E) | 1,000 |
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| 13 | |
ABC's common stock dividend yield is 2.1 percent. The company just paid a dividend of $1, it is expected to pay a dividend of $1.07 one year from now, and dividends are expected to grow at this same rate indefinitely. What is the required rate of return on ABC's stock? |
| | A) | 9.0 percent |
| | B) | 9.1 percent |
| | C) | 9.3 percent |
| | D) | 10.6 percent |
| | E) | 11.2 percent |
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| 14 | |
Boomer Products, Inc., manufactures "no-inhale" cigarettes. As their target customers age and pass on, sales of the product are expected to decline. Thus, demographics suggest that earnings and dividends will decline at a rate of 3 percent annually forever. The firm just paid a dividend of $1.50. Given a required return of 12 percent, the stock should sell for: |
| | A) | $9.70. |
| | B) | $10.50. |
| | C) | $15.00. |
| | D) | $17.17. |
| | E) | $32.50. |
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| 15 | |
A web site which allows investors to trade directly with each other is referred to as: |
| | A) | the SuperDot system. |
| | B) | an electronic communications network, or ECN. |
| | C) | the NASDAQ. |
| | D) | the order flow. |
| | E) | the Philadelphia Exchange. |
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