FIN 334 Chapter 6

15) You are given the following information on a company. Book Value 1,600,000 Market Value 12,804,000 Common ShOut 600,000 Which one of the following statements is correct based on the information provided? A) The market price is $21.34 per share. B) The investment value is $2.67 per share. C) The par value is $2.67 per share. D) The book value is $21.34 per share.

A

Because common shareholders are entitled to the profits that remain after all of a corporation's other obligations have been met, common shareholders are known as A) residual owners. B) temporary owners. C) debt owners. D) owners of last resort.

A

Engines, Inc. declares a 4-for-10 stock split. The stock currently sells for $3 a share. A shareholder who owned 1000 shares of stock prior to the split will now own A) 400 shares valued at about $7.50 a share. B) 40 shares valued at about $1.20 a share. C) 250 shares valued at about $7.50 a share. D) 250 shares valued at about $1.20 a share.

A

From March 2009 to January 2012, stock prices as measured by the S&P 500 Index A) more than doubled in value. B) lost more than half their value. C) declined by nearly 10%. D) rose by nearly 25%.

A

Gypsum Corp. pays out 25% of its earnings as dividends. Earnings per share are currently $1.32, book value per share is $16.80, and the market price per share is $22.44. What is the dividend yield? A) 1.5% B) 2.0% C) 5.9% D) 7.9%

A

If a corporation declares a 10% stock dividend, then A) the share price of the stock will most likely decline by about 9%. B) the share price of the stock will most likely increase by about 10%. C) the share price of the stock will most likely remain unchanged. D) each shareholder will get a 10% cash rebate off his or her next round lot purchase of the stock.

A

In a rights offering, the A) existing stockholders are given the first opportunity to purchase new shares in proportion to their current ownership position. B) underwriter offers the investing public a certain number of shares at a certain price. C) total equity remains constant while the number of shares of common stock outstanding increases. D) amount of debt in the capital structure increases by the amount of the rights offering.

A

Stocks whose prices are expected to remain stable, or even prosper, when economic activity is slowing down are known as A) defensive stocks. B) cyclical stocks. C) growth stocks. D) speculative stocks.

A

The Charbridge Inc. has 4 million shares of stock outstanding. The stock has a par value of $1.00 per share and is currently trading at $36 per share. Nicole estimates the investment value of this stock at $38.50. According to this information, the market capitalization of Charbridge is A) $144,000,000. B) $154,000,000. C) $4,000,000. D) $72 million.

A

The Limberger Corporation declared a quarterly dividend of $0.10 per share. The ex- dividend date was July 15, the date of record was July 18, and the payment date was July 28. If you had owned 100 shares of the Limberger Corporation and sold them on July 15, then A) you would collect $10.00 in dividends, and the purchaser would not collect any dividends. B) the purchaser would collect $10.00 in dividends, and you would not collect any dividends. C) you would collect $5.00 in dividends, and the purchaser would collect $5.00 in dividends. D) neither you nor the purchaser would collect any money in dividends.

A

The common stock investment strategy that is the most basic strategy and is popular with conservative, quality-conscious individuals looking for competitive returns over the long run is the A) buy-and-hold strategy. B) current income strategy. C) growth strategy. D) speculation and short-term trading strategy.

A

The date on which an investor must be a registered shareholder of the firm in order to receive a dividend is called the A) date of record. B) ex-dividend date. C) payment date. D) purchase date.

A

The decision of how much money to pay out in dividends is made by the A) board of directors. B) company shareholders. C) chief executive officer. D) chief financial officer.

A

The par or stated value of common stock is important for A) accounting purposes only. B) helping the investor determine the stock's intrinsic value. C) helping the board of directors determine the dividend payout. D) helping the market determine the trading price of the stock.

A

When a company offers the investing public a certain number of shares of its stock at a certain price, the company is making what is known as a A) public offering. B) rights offering. C) stock spin-off. D) treasury offering.

A

Which of the following best fits the description "speculative stock"? A) Sirius XM Radio B) Facebook C) Amazon D) Apple

A

Which of the following will tend to increase transaction costs? A) using a full service broker B) buying or selling shares through an on-line broker C) buying or selling more than 1000 shares in a single trade D) buying or selling at times when volume is high and the exchanges are busy

A

Which one of the following statements about common stock is true? A) Common stock can provide attractive capital appreciation opportunities. B) Dividends generally provide the greatest rate of return on common stocks. C) Common stocks generally have a negative rate of return over a ten-year period. D) The DJIA is the best indicator of the overall performance of common stocks.

A

Aggressive stock management A) requires holding speculative stocks for the long term. B) involves active stock trading in the short-term in the quest for capital gains. C) concentrates on the long-term growth aspects of a security. D) concentrates on high dividend yielding stocks.

B

Aggressive stock management focuses on the pursuit of A) dividend income. B) short-term capital gains. C) long-term capital gains. D) all of the above.

B

Amanda purchased stock in a German firm at a price per share of 35 euros when the U.S. $/euro exchange rate was $1.20. After six months, Ann sold the stock for 37 euros when the U.S. $/euro exchange rate was $1.10. The stock does not pay a dividend. What is Ann's rate of return on this investment? A) 3.31% B) -3.10% C) 5.7% D) 9.2%

B

Dividend yield is calculated by dividing A) the market price of one share of stock by the annual dividend per share. B) the annual dividend per share by the market price of one share of stock. C) earnings per share by market price per share. D) annual dividend per share by earnings per share.

B

From October 2007 to March 2009, stock prices as measured by the S&P 500 Index A) nearly doubled in value. B) lost more than half their value. C) declined by nearly 10%. D) rose by nearly 25%.

B

If stocks earn an average rate of return of 12 %, their value doubles every A) 4 years. B) 6 years. C) 8 years. D) 12 years.

B

Investors seeking current income that tends to increase over time should purchase A) corporate bonds. B) income stocks. C) growth stocks. D) speculative stocks.

B

Pilgrim Corp. stock currently sells for $25. The dividend yield is 4% and the dividend payout ratio is 25%. The dividend is ________ and the earnings per share are ________. A) $3.00; $1.00 B) $1.00; $4.00 C) $.12; $1.00 D) $.25; $6.25

B

Reinvested dividends A) are taxed when the shares purchased with the reinvested dividend are sold. B) are taxed at the time the dividend is paid. C) do not increase the value of an investors holdings. D) are generally sold at a premium over the market price.

B

Since 2003, dividends have been taxed at the same rate as capital gains. As a result, A) many companies have reduced the percentage of earnings paid out as dividends. B) many companies have increased the percentage of earnings paid out as dividends. C) tax rates have had little or no effect on dividend policies. D) more companies have replaced dividends with stock repurchase plans.

B

Since each share of common stock represents ownership in a company, shares of common stock are often referred to as A) illiquid investments. B) equity securities. C) fixed-income securities. D) unit-cost securities.

B

Stock which has been issued and subsequently reacquired by the issuing corporation is called A) letter stock. B) treasury stock. C) classified stock. D) book stock.

B

Stocks that are readily available to the general public and that are bought and sold on the open market are known as A) initial public offerings. B) publicly traded issues. C) treasury stocks. D) blue chip stocks.

B

The balance sheet value of a firm's assets minus the balance sheet amount of its liabilities is known as A) par value. B) book value. C) liquidation value. D) market value.

B

The stock listing for a company shows a P/E of 18, a dividend yield of 2.4% and a closing price of $23.76. What is the amount of dividends per share? A) $0.03 B) $0.57 C) $1.03 D) $1.32

B

The value that investors place on a stock is called its A) book value. B) investment value. C) liquidation value. D) par value.

B

To take advantage of the opportunity to acquire additional shares of a company's stock without incurring any brokerage commissions, many investors participate in A) initial public offerings. B) dividend reinvestment plans. C) deferred equity securities. D) corporate trusts.

B

Typical characteristics of growth stocks include A) rapidly growing dividends. B) high rates of growth in operations and earnings. C) acquisitions of competing companies. D) strong performance even in market downturns.

B

What are the effects of a company repurchasing its own stock as Treasury shares? A) usually negative in the short term but uncertain over the long term B) usually positive in the short term but uncertain over the long term C) usually positive in both the short term and the long term D) no effect in either the short term or the long term

B

Which of the following best fits the description "defensive stock"? A) Facebook B) Walmart C) Samsung D) Tesla Motors

B

Which of the following periods provided particularly high returns to stock investors? A) February 1972-October 1974 B) March 2009-December 2014 C) September 2000-September 2002 D) October 2007-March 2009

B

Which strategy applies to investors who fund long-term goals with high-quality stocks which they retain for the entire investment period? A) quality long-term growth B) buy and hold C) speculation D) current income

B

A round lot consists of A) 1 share. B) 10 shares. C) 100 shares. D) 1,000 shares.

C

ADRs I. are shares of U.S. companies traded on foreign exchanges. II. are shares of foreign companies traded on U.S. exchanges. III. pay dividends in U.S. dollars if they pay dividends. IV. are subject to exchange rate risk. A) I and II only B) II and III only C) II. III and IV only D) I, II, III and IV

C

Advantages of using American Depositary Receipts to participate in foreign markets include I. lower transaction costs than for direct foreign stock purchases. II. reduced exposure to foreign exchange risk. III. dividends are paid in U.S. dollars. IV. quotations are readily available from U.S. sources such as Yahoo Finance or MSN Money. A) I and II only B) I and III only C) I, II and III only D) I, III and IV only.

C

An individual stock generally provides a A) dividend payment that ensures total protection from purchasing power risk. B) refuge from event risk. C) current income that is less predictable than that available from other types of investments. D) predictable annual rate of return.

C

Another term for the stated value or face value of a stock is its A) book value. B) liquidation value. C) par value. D) proxy value.

C

Companies with strong earnings but limited growth opportunities A) do not generally pay any dividends. B) are called blue-chip stocks. C) generally pay high dividends. D) are speculative stocks.

C

Factors considered in making a decision on a firm's dividend include the I. cash position of the firm. II. firm's growth prospects. III. the expectations of the shareholders. IV. minimum dividends required by law. A) II and IV only B) I, II and IV only C) I, II and III only D) I, II, III and IV

C

For the period 2000 through 2009, the average annual price change for stocks in the S&P 500 index was A) 16%. B) 8%. C) -1%. D) -50%.

C

From 1976 through 2014, the dividend yield on stocks has been ________ the coupon yield on corporate bonds. A) sometimes higher and sometimes lower than B) on average, about the same as C) consistently lower than D) consistently higher than

C

If a firm has a 2 million shares outstanding and its stock trades at $25 per share, the company also has $10,000,000 in debt. The company's market capitalization is A) $40,000,000. B) $49,000,000. C) $50,000,000. D) $60,000,000.

C

One characteristic of mid-cap stocks is that they A) are generally new firms with high growth potential. B) tend to be highly volatile. C) are fairly good-sized companies that offer attractive return opportunities. D) are traded primarily through pink sheet bids.

C

One motive for issuing classified stock with different voting rights is to A) increase the market value of the company. B) avoid SEC reporting requirements. C) allow the company's founders to retain control of the company. D) facilitate the issue of additional shares in the future.

C

Pilgrim Corp. stock currently sells for $25 per share? The annual dividend payment is $1.00 per share and earnings per share are $3.00. The dividend yield is ________ and the dividend payout ratio is ________. A) 12%; .4% B) 8.33%; 25% C) 4%; 33% D) 33%; 4%.

C

Stock quotes on most Internet service providers such as Yahoo Finance include I. the highest and lowest price over the last 52 weeks. II. the closing price for the previous trading day. III. the opening price for the day. IV. the bid price and ask price. A) I and III only B) II and IV only C) I, II and III only D) II, III and IV only

C

The U.S. stock market A) currently represents about 66% of the world's equity market. B) consistently outperforms the foreign markets once exchange rates are considered. C) is decreasing as a percentage of the world's equity market. D) lists over 25,000 stocks.

C

The common shares of the Hiboux Ltd have a book value of $21.60 and a market value of $28.60. The company pays $0.28 in dividends each quarter. What is the dividend yield? A) 1.0% B) 1.3% C) 3.9% D) 5.2%

C

Tiffany owned 1000 shares of GIA stock which was selling for $1.50 per share when the company declared a 1 for 10 reverse split. After the split, Tiffany owned A) 10,000 shares worth approximately $1.50 per share. B) 10,000 shares worth approximately $0.15 per share. C) 100 shares worth approximately $15 per share. D) 100 shares worth approximately $1.50 per share.

C

Westlake Industries has total assets of $42.5 million, total debt of $29.3 million, and $2.4 million of 6% preferred stock outstanding. If the company has 250,000 shares of common stock outstanding, its book value per share would be A) $32.33. B) $33.60. C) $43.20. D) $52.80.

C

Which of the following are advantages of the buy and hold strategy? I. rapid accumulation of wealth II. low transaction costs III. capital gains taxed at the long-term rate IV. portfolio requires less time and energy to manage than for most other strategies A) I and II only B) II and III only C) II, III and IV only D) I, II, III and IV

C

Which of the following are characteristics of blue-chip stocks? I. solid balance sheets II. generous dividend yields III. immunity from bear markets IV. some growth potential A) III and IV only B) II and III only C) I, II and IV only D) II, III and IV only

C

Which of the following are true about stock market returns as measured by the S&P 500 index? I. In 2008 alone stocks in the index lost approximately 36% of their value. II. $10,000 invested in the index in March 2009 would have been worth more than $20,000 by the end of 2014. III. From the beginning of 2000 to the end of 2010, the index more than doubled in value. IV. Both stock and real estate prices recovered recovered strongly in the period between early 2009 and late 2014. A) I II and III only B) II, III and IV only C) I ,II and IV only D) I, and IV only

C

Which of the following best fits the description "blue chip stock"? A) Facebook B) Under Armour C) General Electric D) Chipotle Mexican Grill

C

Which one of the following is a characteristic of blue chip stocks? A) guaranteed minimum annual dividend of $2 a share B) annual dividends of more than $5 per share C) long and stable dividend and earnings records D) relatively high risk exposure

C

As a general rule, which one of the following statements concerning the various values of common stock is correct? A) Market values are usually below book values. B) Par values are usually above book values. C) Market values are usually below par values. D) Book values are usually below market values.

D

Assume the Plum Corporation has two different issues of common stock. One issue carries voting rights, and the other issue does not. In this situation, Plum is said to have issued A) buy-back stock. B) treasury stock. C) OTC stock. D) classified stock.

D

Characteristics of established growth companies include all of the following EXCEPT A) high operating margins. B) steady earnings growth. C) adequate cash flow to service their debt. D) high dividend payout ratios.

D

Income stocks are well suited for retirees because A) dividend income is tax-free. B) the capital gains are predictable. C) dividend yields tend to exceed bond yields. D) dividends tend to increase over time.

D

Many companies increased their dividends A) whenever necessary to compensate shareholders for declining stock values. B) in every year since 1950. C) during the market decline of 2007-2008. D) during the market recovery of 2009-2011.

D

Rob owns 300 shares of Blackwood common stock valued at $9 a share. Blackwood has declared a 3-for-1 stock split effective tomorrow. After the split, Rob will own A) 100 shares valued at about $27 a share. B) 100 shares valued at about $3 a share. C) 900 shares valued at about $27 a share. D) 900 shares valued at about $3 a share.

D

Since 2003, most dividends are taxed A) at a higher rate than capital gains. B) at a lower rate than capital gains. C) at the same rate as ordinary income. D) at the same rate as capital gains

D

Stocks related to computers and the Internet are classified as A) blue-chip stocks. B) income stocks. C) cyclical stocks. D) tech stocks.

D

The extraordinary run up in stock prices during the late 1990s primarily affected A) energy stocks. B) retail stocks. C) pharmaceutical stocks. D) technology stocks.

D

When a corporation declares a stock split, it usually does so because A) the firm's retained earnings are excessive. B) there are too many shares of stock outstanding. C) investors sometimes require nontaxable returns. D) it wants to make its stock more affordable to average investors.

D

Which category of stocks represents the highest level of risk? A) large-cap B) mid-cap C) baby blue D) small-cap

D

Which of the following are benefits related to stock ownership? I. ease of trading II. attractive inflation-adjusted rates of return III. guarantee of long-term positive returns IV. affordability A) I and II only B) II and IV only C) I and III only D) I, II and IV only

D

Which of the following are typical characteristics of small cap stocks? I. strong balance sheets II. market cap less than $2 billion III. potential for high returns along with high risk IV. potentially dramatic changes in their earnings A) III and IV only B) II and III only C) I, III and IV only D) II, III and IV only

D

Which of the following is unlikely to be found in an internet stock quotation? A) earning per share (EPS) B) beta C) previous day's closing price D) broker's commission per 100 shares

D

Which of the following strategies appeal to investors who place primary emphasis on the storage of value aspects of an investment? I. buy and hold II. short-term trading III. quality long-term growth IV. consistent dividend record A) I and IV only B) I and III only C) I, II and III only D) I, III and IV only

D

Which one of the following investment strategies would NOT appeal to an investor who is most concerned with storage of value? A) buy-and-hold B) high income C) quality long-term growth D) speculation and short-term trading Answer: D

D

Which one of the following statements about common stock is correct? A) Each share of stock has a specified maturity date. B) Common stock gives stockholders first title to a share of the company's earnings, prior to other corporate obligations. C) Common stock typically provides higher levels of current income than do similar grade corporate bonds. D) Each share of common stock of a given class entitles the holder to an equal ownership position and an equal vote in the corporation.

D