Unit 12 Test

**Julie owns 100 shares of CCC at $25. CCC declares a 25% stock dividend. After the ex-date, what will she own? I 125 shares II 100 shares III Cost basis of $25 IV Cost basis of $20 A) I and IV B) II and IV C) I and II D) II and III

**A She owns the stock before the ex-date so she will get the stock dividend (buying stock after the ex-date would not entitle you to the dividend) The total value of the position will always remain unchanged. She had 100 shares at $25 per share, or $2,500, and now has 125 shares × $20 = $2,500.

**In the technical analysis of the value of securities, which of the following items is NOT important? A) Resistance and support levels B) The breadth of market volume C) A prevailing market trend in response to shifts in supply and demand D) The amount of a company's past earnings

**D The amount of a company's past earnings is a factor used in the fundamental analysis of securities, but not technical analysis. Technicians rely on market trends and supply and demand factors, as well as chart indications such as resistance and support levels.

**An analyst using the dividend growth model would take into account all of the following factors EXCEPT A) the current dividend B) the growth of the dividend C) the current earnings per share D) the investor's required rate of return

C The dividend growth model is a stock valuation model that deals with dividends and their growth, discounted to today. The value of the stock equals next year's dividends divided by the difference between the required rate of return and the assumed constant growth rate in dividends.

One of your customers notices that the short interest on KAPCO common stock is high. When she asks you for an interpretation, you should tell her that this signals A) a bearish outlook B) that a change in interest rates is coming C) a shortage of enough stock to go around D) a bullish outlook

D

The residual right of common stockholders refers to their right to A) examine the corporation's annual reports and other reports, and take legal action if irregularities are found B) receive all announced dividends in accordance with the number of shares held C) vote in elections for the board of directors and in other important business decisions, such as changes to the charter D) claim company assets in bankruptcy after wages, taxes, creditors, and preferred shareholders have been paid

D The residual right of common shareholders refers to their position in the event of bankruptcy.

**One of the rights of being a stockholder is the ability to vote on important corporate matters, such as the election of members to the board of directors. The date that determines which shareholders are eligible to votes is A) the record date. B) the ex-dividend date. C) the election date. D) the last day of the company's fiscal year.

**A The record date is a date announced by the company as the official date you must be an owner on the company's records in order to participate in the annual meeting and corporate election. A fact not tested is there is no standard regarding how far in advance of the voting date this should be other than it must be at least the normal settlement period, currently 2 business days.

*****One characteristic found in equity securities issued by a corporation is A) limited liability B) preemptive rights C) a history of keeping pace with inflation D) cumulative dividends

A Equity securities include common and preferred stock. Both have the benefit of limited liability; the investor can never be held liable for debts of the corporation. *Only common stock has preemptive rights and the potential for growth to keep pace with inflation. It is preferred stock that can have the cumulative feature regarding its dividends.

Proponents of which of the following technical theories assume that small investors are usually wrong? A) Odd lot B) Volume of trading C) Breadth of market D) Short interest

A Odd lots are usually traded by small investors; some analysts believe small investors are generally wrong.

***In a portfolio containing common stock, straight preferred stock, convertible preferred stock, and adjustable rate preferred stock, changes in interest rates would be most likely to affect the market price of the A)adjustable rate preferred stock B) common stock C) straight preferred stock D) convertible preferred stock

C Fixed income securities, such as *straight preferred stock, are the most sensitive to interest rates among the alternatives listed. Convertible preferred stock is influenced more by the common stock because it is convertible into the underlying security. Because the dividend rate on adjustable rate preferred stock is usually tied to changes in interest rates, the price of this stock remains stable in the face of rising or falling rates.

The dividend discount model is A) based on the dividend payout ratio B) primarily used by technical analysts C) the inverse of the price/earnings ratio D) an analytical tool used to value a common stock using the present value of future dividends

D There are two widely accepted forms of common stock price valuation using dividends—the dividend discount model and the dividend growth model. Neither would be used by technicians because they rely on fundamentals.