Chapter 7 LearnSmart
Which of the following are cash flows to investors in stocks?
Capital Gains Dividends
NASDAQ has which of these features?
Multiple market maker system Computer network of securities dealers
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?
$75
If a zero-dividend stock is purchased for $80 and sold one year later for $84, the 1-year return is ______ percent.
(84/80)-1 = 5%
R
Discount rate
Preferred stock has preference over common stock in the:
Distribution of corporate assets Payment of dividends
What information do we need to determine the value of a stock using the zero growth model?
Dividend Discount rate
In the dividend growth model, the expected return for investors comes from which two sources?
Dividend Yield Growth rate
D0
Dividend just paid
Which of the following are reasons that make valuing a share of stock more difficult than valuing a bond?
Dividends are unknown and uncertain The required rate of return is unobservable Stock has no set maturity
The price of a share of common stock is equal to the present value of all _____ future dividends.
Expected
For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed.
False
A PE ratio that is based on estimated future earnings is known as a __________ PE ratio.
Forward
The _____ can be interpreted as the capital gains yield.
Growth rate
Stock price reporting has increasingly moved from traditional print media to the ______ in recent years.
Internet
P1
Price in one year
P0
Price today
Shares of stock are first brought to the market and sold to investors in the _______ market.
Primary
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%?
R = $2/$100+0.08 = 10%
What is the total return for a stock that currently sells for $50, just paid a $1.75 dividend, and has a constant growth rate of 8%?
R=1.75 x (1.08)/50+0.08 = 11.78%
New York Stock Exchange Designated Market Makers (DMMs) were formerly called _______.
Specialists
Using a benchmark PE ratio against current earnings yields a forecasted price called a _______ price.
Target
Which of the following ratios might be used to estimate the value of a stock?
The Price/Earnings ratio The Price/Sales ratio
Which of the following defines the primary market?
The primary market is where stocks are issued for the first time
A person who brings buyers and sellers together is called a(n) _______.
Broker
Three special case patterns of dividend growth discussed in the text include:
Constant growth non-constant growth zero growth
If unpaid preferred dividends must be "caught up" before any common dividends can be paid, they are called _________ dividends.
Cumulative
All else constant, the dividend yield will increase if the stock price ______.
Decreases
The two most important stock markets in the U.S. are the New York Stock Exchange and _______.
NASDAQ
D1
Next expected dividend
If a company's growth for years 1 through 3 is 20% but stabilizes at 5% beginning in year 4, its growth pattern would be described as ________.
Non-constant
The fundamental business of the New York Stock Exchange is to attract _____>
Order Flow
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?
P0 = 2/0.10 = $20
Which of the following are rights of common stock holders?
The right to vote on matters of importance The right to share proportionally in any common dividends paid The right to share proportionally in any residual value in the event of liquidation
The NYSE differs from the NASDAQ primarily because the NYSE has:
a face-to-face auction market a physical location
The price of a share of common stock is equal to the present value of all _____ future dividends
expected
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
