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Pre-Test
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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
2
A broker and a dealer are the same thing.
A)True
B)False
3
Which one of the following is a true statement regarding publicly traded stocks and bonds?
A)A share of preferred stock is generally easier to value than a share of common stock.
B)The price of a stock is greater than the present value of all future dividends.
C)The dividend growth model can be used to value stocks only if the dividend growth rate is constant from now into infinity.
D)A share of preferred stock represents an ownership interest in a corporation.
E)Preferred stock is more like common stock than it is like a bond.
4
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
5
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.
6
You just voted against a merger proposal from another corporation. You must own:
A)preferred stock.
B)a debenture.
C)common stock.
D)cumulative dividend stock.
E)Class B stock.
7
Which NYSE member is responsible for maintaining a fair, orderly market for the securities assigned to them?
A)commission broker
B)specialist
C)floor broker
D)floor trader
E)discount broker
8
A stock that pays a constant dividend of $1.80 currently sells for $20.00. What is the required rate of return?
A)9.0 percent
B)9.5 percent
C)10.0 percent
D)10.5 percent
E)11.0 percent
9
If New Motors closed at $26.47 and the current quarterly dividend is $.45, what percent yield would be reported in TheWall Street Journal?
A)1.7 percent
B)3.4 percent
C)5.8 percent
D)6.8 percent
E)8.4 percent
10
Biogenetics, Inc., plans to retain and reinvest all of its earnings for the next 30 years.
Investors believe that at the end of year 31 the firm will pay a dividend of $12.00 per share.
The dividend will increase at a 6 percent rate annually thereafter. Given a required return of 15 percent, the stock should sell for _____ today.
A)$1.21
B)$1.64
C)$1.87
D)$2.01
E)$2.32





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