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You are interested in investing in a company that expects to grow steadily at an annual rate of 6 percent for the foreseeable future. The firm paid a dividend of $2.30 last year. If your required rate of return is 10 percent, what is the most you would be willing to pay for this stock? (Round to the nearest dollar.)


A) $58
B) $61
C) $23
D) $24

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The common shareholders of a company have unlimited liability.

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Which of the following statements is true about common stock?


A) Common stock is considered to have a fixed maturity.
B) Owners of common stock are guaranteed dividend payment by the firm.
C) Owners of common stock have the lowest-priority claim on the firm's assets in the event of bankruptcy.
D) Common-stock holders have unlimited liability toward the obligations of the corporation.

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Grant, Inc., is a high growth stock and expects to grow at a rate of 25 percent for the next four years. It will then settle to a constant-growth rate of 10 percent. The first dividend will be paid out in year 3 and will be equal to $5.00. If the required rate of return is 18 percent, what is the current price of the stock? (Do not round intermediate calculations. Round final answer to two decimal places.)


A) $85.94
B) $97.19
C) $50.59
D) $65.68

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Companies raise capital in secondary markets by issuing new securities.

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For a company that has no growth, dividends stay constant over time.

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Which of the following statements is true about secondary markets in the United States?


A) In terms of total stock value of the firms listed, the NASDAQ is the largest in the world and the NYSE is the second largest.
B) NASDAQ is an OTC (over-the-counter) market.
C) Firms listed on the NASDAQ tend to be, on average, larger in size, and their shares trade more frequently than those traded on NYSE.
D) In the United States, most secondary market transactions are done over the counter.

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Which of the following statements is NOT true about secondary markets?


A) In terms of total stock value of the firms listed, the NASDAQ is the largest in the world and the NYSE is the second largest.
B) NASDAQ is the second-largest stock market in the United States.
C) Firms listed on the NYSE tend to belarger in size and their shares trade more frequently than those traded on NASDAQ.
D) In the United States, most secondary market transactions are done on one of the many stock exchanges.

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BioSci, Inc., a biotech firm has forecast the following growth rates for the next three years: 30 percent, 25 percent, and 20 percent. The company then expects to grow at a constant rate of 7 percent for the next several years. The company paid a dividend of $2.00 last week. If the required rate of return is 16 percent, what is the market value of this stock? (Do not round intermediate calculations. Round final answer to two decimal places.)


A) $51.03
B) $36.86
C) $56.12
D) $46.37

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The least efficient of all the different types of secondary markets is the:


A) auction market.
B) direct search market.
C) dealer market.
D) broker market.

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Prior, Inc., is expected to grow at a constant rate of 9 percent. If the company's next dividend is $2.75 and its current price is $37.35, what is the required rate of return on this stock? (Do not round intermediate calculations. Round final answer to the nearest percent.)


A) 13%
B) 16%
C) 20%
D) 21%

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Dealer markets are characterized by:


A) no time-consuming search for a fair deal.
B) a guarantee of order fulfillment because the dealer holds an inventory of securities.
C) improved market efficiency because dealers provide continuous bid and ask prices for securities.
D) All of the above characterize dealer markets.

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Which of the following statements is true about dealer markets?


A) NYSE is the best-known example of a dealer market.
B) A dealer market involves time-consuming search for a fair deal.
C) The advantage of a dealer over a brokered market is that brokers cannot guarantee that an order will be executed promptly, while dealers can, because they have an inventory of securities.
D) All of the above are true of dealer markets.

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Discuss the significance of an active secondary market to both issuers of securities and to investors.

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Most secondary market transactions do no...

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Which of the following statements is NOT true about the general dividend valuation model?


A) The model does not assume any specific pattern for future dividends, such as a constant growth rate.
B) It makes a specific assumption about when the share of stock is going to be sold in the future.
C) The model calls for forecasting an infinite number of dividends for a stock.
D) The price of a share of stock is the present value of all expected future dividends.

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A preferred stock with a defined maturity date is similar to a bond with a fixed maturity date. Thus, a preferred stock can be valued in a similar fashion to a bond.

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In brokered markets:


A) the commission charged by brokers is a lower cost to buyers and sellers than the cost of direct search.
B) buyers and sellers are brought together for a commission.
C) brokers build a pool of price information through their extensive contacts.
D) All of the above are true of broker markets.

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A communications company pays annual dividends of $8.50 with no possibility of it changing in the next several years. If the firm's stock is currently selling at $60.71, what is the required rate of return? (Round to nearest whole number.)


A) 14%
B) 16%
C) 13%
D) 15%

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A company's earnings and dividends are growing at a constant rate of 8 percent. Last week it paid a dividend of $3.00. If the required rate of return is 15 percent, what is the price of the stock three years from now? (Do not round intermediate calculations. Round final answer to two decimal places.)


A) $58.31
B) $46.29
C) $51.02
D) $42.83

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Zephyr Electricals is a company with no growth potential. Its last dividend payment was $4.50, and it expects no change in future dividends. What is the current price of the company's stock given a discount rate of 9 percent?


A) $40.50
B) $50.00
C) $45.00
D) $500.00

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