Corporate Finance

What is the price of a stock at the end of one year (P1) if the dividend for Year 2 (Div2) is $5, the price for Year 2 (P2) is $20, and the discount rate is 8 percent?

$23.15 (P1= ($5 + 20)/1.08 = $23.15)

Stocks that trade "over the counter" are called:

OTC

The NASDAQ market is a(n) ______ market rather than an auction market.

dealer

The price of a share of common stock is equal to the present value of all ______ future dividends.

expected

For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed.

false

True or false: Securities in the same risk will likely have different expected rates of return.

false

An asset's value is determined by the present value of its ______ cash flows.

future

When evaluating the value of a firm, in addition to book value, an investor may also consider which of the following?

going-concern value

A no-dividend firm can still pay off for an investor by ______.

having capital gains

A firm may choose to forgo dividends today if growth opportunities are _____.

high

You can track trades in public corporations' stock easily on the ________.

internet

A firm without growth opportunities should sell for ____ a firm with growth opportunities.

less than

A _______ order sets a price limit at which an investor is willing to buy or sell stock, whereas a market order is to simply buy or sell at the best available price.

limit

A _______ order is an order to sell stock at the best available price.

market

The __________ is found by dividing the current price per share by last year's earnings per share.

price earnings ratio

Sales of new shares of stock occur in the:

primary

The trading of existing shares occurs in the ______ market.

secondary

The two most important stock markets in the United States are the New York Stock Exchange and the ______.

NASDAQ

A computer network that connects traders directly with one another is called a(n):

ECN

You are evaluating a particular stock and observe that the companies in that stock's risk class offer an expected rate of return of 15%. You therefore expect that the stock will earn:

15%

If a zero-dividend stock is purchased for $80 and sold one year later for $84, the 1-year return is ______ percent.

5

The NASDAQ market is a dealer market rather than an _________ market.

auction

When evaluating the value of a firm, in addition to book value, an investor may also consider which of the following? a. yield value b. liquidation value c. secondary value d. going-concern value

b, d

Investors select a stock based on the cash they expect to receive from that stock. That cash comes in the form of ____. a. commissions b. interest payments c. the future sales price d. dividends

c, d

The price earnings ratio is found by dividing the current price per share by last year's ______.

earnings per share

A calculated stock price that discounts earnings instead of dividends will usually be:

too high

For investors in the stock market, neither dividends nor capital gains are fixed or guaranteed.

true

True or false: You can track trades in public corporations' stock easily on the Internet.

true