Business Finance - Equity Markets and Stock Valuation

A benchmark PE ratio can be determined using: A. the PEs of similar companies B. Bank of Canada estimates C. a company's own historical PEs D. the constant growth model

A & C

If the growth rate (g) is zero, the capital gains yield is __________. A. 100 percent B. zero C. higher than the dividend yield D. cyclical

B

Suppose a firm's dividends are expected to grow at a rate of 15% (g1) for 3 years (t) then stabilize at 5% (g2) forever. If the firm just paid a $2.00 (D0) dividend and the discount rate is 10% (r), what is the value of a share of the firm's stock in year 3 (P3)? A. $75.66 B. $70.54 C. $63.88 D. $81.33

C

A zero-growth stock pays a dividend of $2 per share and has a discount rate of 10%. What will the stock's price be? A. 20.00 B. 12.29 C. 1.81

A

Which of the following defines the primary market? A. The primary market is where stocks trade once they have been issued. B. Primary markets are markets that are regulated by the Fed. C. The primary market is where stocks are issues for the first time. D. Primary markets are markets for basic goods and services.

C

Which of the following are reasons that make valuing a share of stock more difficult than valuing a bond? A. Different stock issues have different maturity dates. B. Dividends are unknown but certain. C. Stock has no set maturity. D. Dividends are unknown and uncertain. E. The required rate of return is unobservable.

C, D, & E

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

decreases

NASDAQ has which of these features? A. Computer network of securities dealers B. Physical trading floor C. Multiple market maker system D. Single DMM system

A & C

What information do we need to determine the value of a stock using the zero growth model? A. capital gain B. discount rate C. future price of stock D. dividend

B & D

Examples of secondary markets in the U.S. include which of the following? A. Goldman-Sachs B. NASDAQ C. The Chicago Stock Exchange D. The New York Stock Exchange

B, C, & D

What is the price of a stock at the end of one year (P1) if the dividend for year 2 (D2) is $5, the price for year 2 (P2) is $20, and the discount rate is 10%? A. $2.73 B. $25.00 C. $22.73 D. $19.73

C

If a zero-dividend stock is purchased for $80 and sold one year later for $84, the 1-year return is __________ percent. A. 3 B. 6 C. 4 D. 5

D

If unpaid preferred dividends must be "caught up" before any common dividends can be paid, they are called _______ dividends. A. catch-up B. preferential C. make-whole D. cumulative

D

Initial public offerings of stock occur in the __________ market. A. secondary B. commodities C. futures D. primary

D

This type of growth describes a company that grows quickly at first, then slower in future years. A. Different B. Differential C. Fixed D. Non-constant

D

The NYSE differs from the NASDAQ primarily because the NYSE has: A. A physical location B. Brokers C. A Faster Network D. A Face-to-Face Auction Market

A & D

Which one of the following is true about dividend growth patterns? A. Dividends never grow B. Dividends may grow at a constant rate. C. Dividends always grow at a constant rate. D. Dividends always grow at a differential rate.

B

Stock price reporting has increasingly moved from traditional print media to the __________ in recent years. A. internet B. network newscasts C. ticker tape machine D. radio

A

The dividend yield is determined by dividing the expected dividend (D1) by: A. The current price (P0) B. The growth (G) C. Retained Earnings D. The discount rate (R)

A

The fundamental business of the New York Stock Exchange is to attract _______. A. order flow B. customers C. dealers D. institutions

A

Which of the following are rights of common stock holders? A. The right to vote on matters of importance. B. The right to share proportionally in any residual value in the event of liquidation. C. First claim on any assets in the event of liquidation. D. The right to dividends each year. E. The right to share proportionally in any common dividends paid.

A, B, & E

The two most important stock markets in the U.S. are the New York Stock Exchange and __________. A. NASDAQ B. The Tokyo Stock Exchange C. The TSX Venture Exchange D. The London Stock Exchange

A

Websites that allow investors to trade directly with one another are termed __________. A. ECNs B. OMX C. Level 2 D. BATS

A

A PE ratio that is based on estimated future earnings is known as a ________ PE ratio. A. relative B. voodoo C. target D. forward

D

A person who brings buyers and sellers together is called a(n)__________. A. dealer B. lawyer C. investor D. broker

D

In the dividend discount model, the expected return for investors comes from which two sources? A. Growth Rate B. Dividend Yield C. Tax Rate D. Amount of Last Dividend Paid

A & B

Preferred stock has preference over common stock in the: A. Payment of Dividends B. Distribution of Corporate Assets C. Number of Votes Given D. Portfolios of Individual Investors

A & B

Which of the following are cash flows to investors in stocks? A. Dividends B. Capital Gains C. Fees D. Interest

A & B

What is the total return for a stock that currently sells for $100, is expected to pay a dividend in one year of $2, and has a constant growth rate of 8%? A. 9.8% B. 11.8% C. 10.8% D. 10%

D

What is the value of a stock if next year's dividend is $6, the discount rate is 11 percent and the constant rate of growth is 3 percent? A. $79 B. $70 C. $65 D. $75

D