Finance chapter 7 sb

Common stock has a set maturity.

False

Which of the following is true of classes of common stock?

A primary reason for creating more than one class of stock is to maintain control. The classes of common stock often have unequal voting rights.

The dividend yield is determined by dividing the expected dividend (D1) by: Multiple choice question.

The current price P0

Which of the following defines the primary market?

The primary market is where stocks are issued for the first time.

Which of the following are reasons that make valuing a share of stock more difficult than valuing a bond?

The required rate of return is unobservable Stock has no set maturity. Dividends are unknown and uncertain.

Which of the following ratios might be used to estimate the value of a stock?

the price earnings ratio

Under a , voting mechanism, the minimum number of votes required to acquire a seat on a board is % PLUS

straight, 50, 1

A person who brings buyers and sellers together is called a(n) Blank______.

broker

When directors elected by common shareholders defer preferred dividends indefinitely, Blank______.

common shareholders must also forego dividends

Identify the two types of preferred dividends

cumulative and noncumulative

True or false: All classes of stock issued by a firm must have equal voting rights.

false

The business of the NYSE is to attract Blank______

order flow

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

expected

The value of a firm is derived using the firm's Blank______ rate and its Blank______ rate.

growth, discount

Stock price reporting has increasingly moved from traditional print media to the Blank______ in recent years.

internet

What beneficial purpose does staggering serve?

provides institutional memory

Match the following terms relating to stock valuation. P1 D1 R P0 D0

P1 price in one year D1 Next expected dividend R discount rate P0 price today D0 dividend just paid

Which of the following are cash flows to investors in stocks? Multiple select question.

dividends, capital gains

The constant growth model assumes that Blank______.

dividends change at a constant rate

______ refers to the stream of customer orders to buy and sell stocks.

order flow

Initial public offerings of stock occur in the Blank______ market.

primary

A benchmark PE ratio can be determined using:

-a company's own historical PEs -the PEs of similar companies

If there are nine directors to be elected, what is the least number of shares you will need to guarantee a seat on the board under cumulative voting?

10 percent of the stock plus 1 share

If there are nine directors that need to be elected, how many shares do you need to own in order to guarantee a seat on the board under straight voting?

50 percent of the stock + 1 share

What right does a proxy give to a shareholder?

the right to vote on behalf of another shareholder

What is the formula for the present value of a growing perpetuity, where C1 is the net cash flow, R is the required return, and g is the growth rate?

[C1 /(r - g)]

A benchmark PE ratio can be determined using:

a company's own historical PEs. the PEs of similar companies.

Someone who maintains an inventory of stocks and buys and sells those stocks is known as a Blank______.

dealer

All else constant, the dividend yield will increase if the stock price Blank______.

decrease

A written authorization for one shareholder to vote the stock of another shareholder is called

proxy

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

False

In the dividend growth model, the expected return for investors comes from which two sources?

growth rate dividend yield