Question 1

Legally, common stockholders have unlimited liability.

Accepted Answer

A) True 
 B)False

Question 2

PV of dividends: Kleine Toymakers is introducing a new line of robotic toys, which it expects to grow their earnings at a much faster rate than normal over the next three years. After paying a dividend of $2.00 last year, it does not expect to pay a dividend for the next three years. After that Kleine plans to pay a dividend of $4.00 in year 4 and then increase the dividend at a rate of 10 percent in years 5 and 6. What is the present value of the dividends to be paid out over the next six years if the required rate of rat of return is 15 percent?

Accepted Answer

A)   $13.24
B)   $12.00
C)   $6.57
D)   $10.24

Question 3

Owners of preferred stock

Accepted Answer

A)   have limited voting rights.
B)   usually receive fixed dividend payments.
C)   are given priority treatment over common stock with respect to dividends payments and the claims against the firm's assets in the event of bankruptcy or liquidation.
D)   All of the above statements are true.

Question 4

The largest holders of equity securities are

Accepted Answer

A)   mutual funds.
B)   pension funds.
C)   foreign investors.
D)   households.

Question 5

Preferred dividend payments are fixed amounts paid regularly, similar to the interest payments on corporate bonds.

Accepted Answer

A) True 
 B)False

Question 6

A fast growing company will pay constant dividends over time.

Accepted Answer

A) True 
 B)False

Question 7

Direct search markets provide the best price information.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)   In terms of total volume of activity and total capitalization of the firms listed, the NASDAQ is the largest in the world and the NYSE is the second largest.
B)   In terms of the number of companies listed and shares traded on a daily basis, the NASDAQ is larger than the NYSE.
C)   Firms listed on the NYSE tend to be, on average, larger in size and their shares trade more frequently than firms whose securities trade on NASDAQ.
D)   In the United States, most secondary market transactions are done on one of the many stock exchanges.

Question 9

Which one of the following statements is NOT true about common stock?

Accepted Answer

A)   Common-stock holders have the right to vote on the selection of the board of directors for the firm.
B)   Common stock is considered to have no fixed maturity.
C)   Owners of common stock are guaranteed dividend payments by the firm.
D)   Common-stock holders have limited liability.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Preferred stock: The preferred stock of Acme International is selling currently at $110.35. If your required rate of return is 9.75 percent, what is the dividend paid by this stock?

Accepted Answer

A)   $9.75
B)   $11.32
C)   $10.76
D)   $8.53

Question 12

Preferred stock valuation: The Columbia Consumer Products Co. has issued perpetual preferred stock with a $100 par value. The firm pays a quarterly dividend of $2.60 on this stock. What is the current price of this preferred stock given a required rate of return of 12.5 percent?

Accepted Answer

A)   $47.25
B)   $80.00
C)   $20.80
D)   $83.20

Question 13

The market considers preferred stock to be a debt security because the dividend payment is a fixed contractual obligation and has credit ratings like bonds.

Accepted Answer

A) True 
 B)False

Question 14

Constant growth: Johnson Corporation has just paid a dividend of $4.45. The company has forecasted a growth rate of 8 percent for the next several years. If the appropriate discount rate is 14 percent, what is the current price of this stock? (Round to the nearest dollar.)

Accepted Answer

A)   $74
B)   $32
C)   $80
D)   $60

Question 15

Direct search markets are characterized by

Accepted Answer

A)   complete price information.
B)   extensive broker and dealer participation
C)   private placement transactions and sale of common stock of small private companies.
D)   a high level of efficiency.

Question 16

Which ONE of the following statements is true about secondary markets?

Accepted Answer

A)   In secondary markets, outstanding shares of stock are bought and sold among investors.
B)   For an investor, the function of secondary markets is to provide profitability for the shares of securities they own.
C)   An active secondary market causes firms to sell their new debt or equity issues at a higher cost of funds.
D)   All of the above are true statements

Question 17

The constant growth dividend model would be useful to determine the value of all but which of the following firms?

Accepted Answer

A)   A firm whose earnings and dividends are declining at a fairly steady rate.
B)   A firm whose sales, profits, and dividends are growing at an annual average compound rate of 5 percent.
C)   A firm whose earnings and dividends are growing at a fairly steady rate.
D)   A firm whose expected sales, profits, and dividends are flat.

Question 18

Valuation of common and preferred stock is done using a different valuation formula than that used for bonds.

Accepted Answer

A) True 
 B)False

Question 19

The constant-growth dividend model will provide invalid solutions when

Accepted Answer

A)   the growth rate of the stock exceeds the required rate of return for the stock.
B)   the growth rate of the stock is less than the required rate of return for the stock.
C)   the growth rate of the stock is smaller than 10%.
D)   None of the above.

Question 20

In brokered markets

Accepted Answer

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 transaction fee.
C)   brokers build a pool of price information through their extensive contacts.
D)   All of the above are true of broker markets.

Exam 9: Share Valuation

Owners of preferred stock

Correct Answer
verified

Preferred dividend payments are fixed amounts paid regularly, similar to the interest payments on corporate bonds.

Correct Answer
verified

Constant growth: Johnson Corporation has just paid a dividend of $4.45. The company has forecasted a growth rate of 8 percent for the next several years. If the appropriate discount rate is 14 percent, what is the current price of this stock? (Round to the nearest dollar.)

Correct Answer
verified

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

Correct Answer
verified

The constant-growth dividend model will provide invalid solutions when

Correct Answer
verified

Valuation of common and preferred stock is done using a different valuation formula than that used for bonds.

Correct Answer
verified

The constant growth dividend model would be useful to determine the value of all but which of the following firms?

Correct Answer
verified

The market considers preferred stock to be a debt security because the dividend payment is a fixed contractual obligation and has credit ratings like bonds.

Correct Answer
verified

Preferred stock: The preferred stock of Acme International is selling currently at $110.35. If your required rate of return is 9.75 percent, what is the dividend paid by this stock?

Correct Answer
verified

A fast growing company will pay constant dividends over time.

Correct Answer
verified

Direct search markets are characterized by

Correct Answer
verified

Which one of the following statements is NOT true about common stock?

Correct Answer
verified

Preferred stock valuation: The Columbia Consumer Products Co. has issued perpetual preferred stock with a $100 par value. The firm pays a quarterly dividend of $2.60 on this stock. What is the current price of this preferred stock given a required rate of return of 12.5 percent?

Correct Answer
verified

Legally, common stockholders have unlimited liability.

Correct Answer
verified

The largest holders of equity securities are

Correct Answer
verified

In brokered markets

Correct Answer
verified

Direct search markets provide the best price information.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Which ONE of the following statements is true about secondary markets?

Correct Answer
verified

Exam 9: Share Valuation

Owners of preferred stock

Correct AnswerverifiedShow Answer

Preferred dividend payments are fixed amounts paid regularly, similar to the interest payments on corporate bonds.

Correct AnswerverifiedShow Answer

Constant growth: Johnson Corporation has just paid a dividend of $4.45. The company has forecasted a growth rate of 8 percent for the next several years. If the appropriate discount rate is 14 percent, what is the current price of this stock? (Round to the nearest dollar.)

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The constant-growth dividend model will provide invalid solutions when

Correct AnswerverifiedShow Answer

Valuation of common and preferred stock is done using a different valuation formula than that used for bonds.

Correct AnswerverifiedShow Answer

The constant growth dividend model would be useful to determine the value of all but which of the following firms?

Correct AnswerverifiedShow Answer

The market considers preferred stock to be a debt security because the dividend payment is a fixed contractual obligation and has credit ratings like bonds.

Correct AnswerverifiedShow Answer

Preferred stock: The preferred stock of Acme International is selling currently at $110.35. If your required rate of return is 9.75 percent, what is the dividend paid by this stock?

Correct AnswerverifiedShow Answer

A fast growing company will pay constant dividends over time.

Correct AnswerverifiedShow Answer

Direct search markets are characterized by

Correct AnswerverifiedShow Answer

Which one of the following statements is NOT true about common stock?

Correct AnswerverifiedShow Answer

Preferred stock valuation: The Columbia Consumer Products Co. has issued perpetual preferred stock with a $100 par value. The firm pays a quarterly dividend of $2.60 on this stock. What is the current price of this preferred stock given a required rate of return of 12.5 percent?

Correct AnswerverifiedShow Answer

Legally, common stockholders have unlimited liability.

Correct AnswerverifiedShow Answer

The largest holders of equity securities are

Correct AnswerverifiedShow Answer

In brokered markets

Correct AnswerverifiedShow Answer

Direct search markets provide the best price information.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which ONE of the following statements is true about secondary markets?

Correct AnswerverifiedShow Answer

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