BA-323

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

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

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

The constant growth model assumes that

dividends change at a constant rate

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

expected

______ can be interpreted as the capital gains yield.

growth rate

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

growth; discount

Which of the following are rights of common stock holders?

he right to share proportionally in any residual value in the event of liquidation. the right to vote on matters of importance. the right to share proportionally in any common dividends paid.

If a company's growth for Years 1 through 3 is 20 percent but stabilizes at 5 percent beginning in Year 4, its growth pattern would be described as Blank______.

nonconstant

When voting for the board of directors, the number of votes a shareholder is entitled to is generally determined as follows:

one vote per share held

A written authorization for one shareholder to vote the stock of another shareholder is called a(n) Blank______.

proxy

Institutional memory can be enhanced by

staggering board elections

The dividend yield is determined by dividing the expected dividend (D1) by:

the current price (P0).

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

the price-earnings ratio

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

R = Blank______.

D1/P0 + g

Which one of the following is true about dividend growth patterns?

Dividends may grow at a constant rate.

If the growth rate (g) is zero, the capital gains yield is

zero

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?

P = C1/(R − g)

A benchmark PE ratio can be determined using:

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

Which of the following are cash flows to investors in stocks?

capital gains dividends

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

decreases

What information do we need to determine the value of a stock using the zero growth model?

discount rate dividend

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

Blank 1: straight Blank 2: 50 or fifty Blank 3: 1 or one