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| 1 | |
Shares of common stock: |
| | A) | are shares of the ownership of the company that issued the stock. |
| | B) | are debt instruments that must be repaid if the company declares bankruptcy. |
| | C) | entitle the stockholder to a share of the profits of the corporation, but also require the owner to cover a share of any losses by the firm. |
| | D) | None of the above is correct. |
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| 2 | |
Stockholders are said to be residual claimants because: |
| | A) | they receive a share of the residuals from any movies or books written about the firm. |
| | B) | they receive what revenue is left over after all other claims have been satisfied in the event of a bankruptcy. |
| | C) | they are able to go to the firm at any time and ask that their share of the firm's physical capital be turned over to them in return for their stock certificates. |
| | D) | None of the above is correct. |
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| 3 | |
As a result of limited liability, the maximum amount that a shareholder can lose when a firm becomes bankrupt is his or her: |
| | A) | share of the total debt of the company. |
| | B) | entire personal wealth. |
| | C) | financial investment in that company's stock. |
| | D) | None of the above is correct. |
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| 4 | |
Which of the following statements incorrectly describes the role of common stockholders in a corporation? |
| | A) | Stockholders can replace current management. |
| | B) | Stockholders are the owners of the corporation. |
| | C) | Stockholders have unlimited liability. |
| | D) | Stockholders are residual claimants. |
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| 5 | |
An index number: |
| | A) | may be used to compute the percentage change in a variable. |
| | B) | may be used to measure changes in the quantity of output or in the price level |
| | C) | Both of the above are correct. |
| | D) | None of the above is correct. |
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| 6 | |
Which of the following is an example of a price-weighted average? |
| | A) | the Dow Jones Industrial Average |
| | B) | the Standard & Poor's 500 average |
| | C) | the Nasdaq composite index |
| | D) | All of the above are correct. |
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| 7 | |
If the Dow Jones Industrial Average increases from 14,200 to 14,645, the percentage change in this index is: |
| | A) | 0.31%. |
| | B) | 3.13%. |
| | C) | 31.3%. |
| | D) | 3.04%. |
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| 8 | |
The value of a stock decreases by 20% from its original price of $50. What percentage increase is required for the stock price to return to $50? |
| | A) | 25% |
| | B) | 33.33% |
| | C) | 50% |
| | D) | 20% |
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| 9 | |
Suppose that you initially had a portfolio of stocks worth $1,000. This portfolio loses 50% over the next year, but gains 50% over the following year. At the end of two years your portfolio is worth: |
| | A) | $500. |
| | B) | $750. |
| | C) | $1,000. |
| | D) | $1,250. |
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| 10 | |
Which of the following is the most comprehensive measure of the performance of the overall stock market? |
| | A) | the Dow Jones Industrial Average |
| | B) | Standard and Poor's 500 index |
| | C) | the Wilshire 5000 |
| | D) | the Birmingham 6000 |
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| 11 | |
Economic theory suggests that the price of a stock equals: |
| | A) | the present value of the expected payment stream associated with the stock. |
| | B) | a purely random value that is unrelated to fundamental value. |
| | C) | a value that is best predicted by careful analysis of trends in stock prices and in the psychology of the market. |
| | D) | None of the above is correct. |
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| 12 | |
The dividend-discount model suggests that an increase in the expected rate of dividend growth will cause the market price of a stock to: |
| | A) | rise. |
| | B) | fall. |
| | C) | remain unchanged. |
| | D) | change in an unpredictable manner. |
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| 13 | |
The dividend-discount model suggests that an increase in the interest rate will cause the market price of a stock to: |
| | A) | rise. |
| | B) | fall. |
| | C) | remain unchanged. |
| | D) | change in an unpredictable manner. |
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| 14 | |
An increase in the risk premium associated with stocks will cause the current price of stocks to: |
| | A) | rise. |
| | B) | fall. |
| | C) | remain unchanged. |
| | D) | change in an unpredictable manner. |
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| 15 | |
The theory of efficient markets suggests that the current price of a stock is: |
| | A) | based upon all available information. |
| | B) | typically an overestimate of the fundamental value of the stock. |
| | C) | typically an underestimate of the fundamental value of the stock. |
| | D) | None of the above is correct. |
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| 16 | |
According to the theory of efficient markets, day-to-day changes in stock prices: |
| | A) | cannot be predicted in advance. |
| | B) | are best predicted by past trends and cycles in stock prices. |
| | C) | can be forecast by the best mutual fund managers. |
| | D) | None of the above is correct. |
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| 17 | |
The theory of efficient markets suggests that the best predictor of the future value of a stock is: |
| | A) | today's stock price. |
| | B) | provided by financial analysts. |
| | C) | provided by financial newspapers. |
| | D) | None of the above is correct. |
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| 18 | |
Jeremy Siegel's research suggests that: |
| | A) | stocks are a better short-term investment than bonds. |
| | B) | stocks are less risky than bonds in both the short-term and the long-term. |
| | C) | stocks have been a relatively safe long-term investment, but can be risky as a short-term investment. |
| | D) | bonds have provided higher returns than stock in both the short term and the long term. |
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| 19 | |
Stock market bubbles result in economic inefficiency because they: |
| | A) | result in excessive investment spending in the industries in which the bubble is occurring. |
| | B) | result in larger variations in household wealth over time. |
| | C) | Both of the above are correct. |
| | D) | None of the above is correct. |
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| 20 | |
Resources are allocated most efficiently when stock prices: |
| | A) | are rising rapidly for firms in some industries during a stock market bubble. |
| | B) | are declining after a stock market bubble bursts. |
| | C) | reflect fundamental values. |
| | D) | None of the above is correct. |
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