ACE 240 Quiz 10

Anderson, Inc. has $10 million liabilities, $12 million preferred stock, 8 million shares of common stock outstanding, and $45 million in total assets. The book value is

$2.88 per share

Suppose the EPS (earnings per share) of Wal-Mart stock was $2 and the current price per earnings ratio is 10. What is the current price of Wal-Mart stock?

$20

John Smith is in the 28 percent tax bracket. If he were to purchase a $1,000 municipal bond that had a stated interest rate of 6.9%, the taxable equivalent yield would be

9.583%

Which of the following statements about preferred stock is true?

Dividends must generally be paid to preferred shareholders before dividends may be paid to common shareholders

In which of the following types of investment is the most liquidity risk?

Land

Cash dividends on common stock are most often paid

Quarterly

Stocks whose price movements who tend to follow the business cycle are called

cyclical stocks

Which of the following is most likely to occur immediately following the announcement that the rating on a corporate bond has been lowered to junk status?

The price of the bond will decline

Bonds issued by subdivisions of the U.S. government but not explicitly guaranteed by the government are called

agency bonds

Only the strongest, most stable and safe-return companies can be called

blue chip stocks.

A company has a beta of 1.0; if the market goes down by 8%, the value of the company's stock will

decline 8%

If the current price of an investment increases, what affect does the price increase have on approximate yield?

decrease yield

Companies whose operations and earnings have increased at an above-average level over the recent past are called

growth companies

Positive aspects about bonds do not include

high long-run return

Bond prices and current interest rates are ____ related

inversely

One of the more appealing features of a common stock is that stock investments

offer ownership with a limited liability

A characteristic of defensive stocks is

price stability in economic decline

Which of the following types of risk affect owners of fixed income securities more than owners of equity securities?

purchasing power risk

A high inflation rate would result in a high degree of

purchasing power risk.

____ stocks are really purchased more as a gamble than because they have a proven history of good performance.

speculative