Chapter 8 FIN3200

Stock Index Performance On November 26, 2007, The Dow Jones Industrial Average closed at 12,743.40, which was down 237.44 that day. What was the return (in percent) of the stock market that day? -0.02 percent +0.02 percent -1.83 percent +1.83 percent

-1.83 percent

Value a Constant Growth Stock Financial analysts forecast Best Buy Company (BBY) growth for the future to be 13 percent. Their recent dividend was $0.49. What is the value of their stock when the required rate of return is 14.13 percent? $3.92 $4.90 $43.36 $49.00

$49

P/E Ratio and Stock Price International Business Machines (IBM) has earnings per share of $6.85 and a P/E ratio of 15.19. What is the stock price? $0.45 $2.22 $45.09 $104.05

$104.05

GEN has 1 million shares outstanding and a P/E ratio of 12. Its earnings per share is $2.00. What is GEN's market capitalization? $24,000,000 $12,000,000 $2,000,000 $96,000,000

$24,000,000

Selling Stock with a Limit Order You would like to sell 400 shares of International Business Machines (IBM). The current bid and ask quotes are $96.24 and $96.17, respectively. You place a limit sell-order at $96.20. If the trade executes, how much money do you receive from the buyer? $38,464.00 $38,468.00 $38,480.00 $38,496.00

$38,480.00

Financial analysts forecast ABC Inc. growth for the future to be 12 percent. ABC's recent dividend was $1.60. What is the value of ABC stock when the required return is 15 percent? $59.73 $63.72 $79.81 $91.02

$59.73

Buying Stock with Commission At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 100 shares of Ralph Lauren (RL), which trades at $85.13? $8,503.05 $8,503.00 $8,522.95 $9,508.00

$8,522.95

JUJU's dividend next year is expected to be $5.50. It is trading at $45 and is expected to grow at 4 percent per year. What is JUJU's dividend yield and capital gain? 2.5 percent; 6 percent 12.22 percent; 4 percent 4 percent; 12.22 percent 6 percent; 2.5 percent

12.22 percent; 4 percent

The Standard & Poor's 500 Index includes: all of the stock listed on the New York Stock Exchange. 30 of the largest (market capitalization) and most active companies in the U.S. economy. 500 firms that are the largest in their respective economic sectors. 500 firms that are the largest as ranked by Fortune Magazine.

500 firms that are the largest in their respective economic sectors.

Which of the following will only be executed if the order's price conditions are met? A trade A limit order An unlimited order A spread

A limit order

A firm does not pay any dividends at this point in time. Which valuation method should be used on this stock? Residual Claimant Model Variable Growth Model P/E Ratio Model Capital Gain Model

P/E Ratio Model

To list a stock on the NYSE, a company must meet minimum requirements that include all of the following EXCEPT: firm size. total number of stockholders. level of trading volume. P/E ratio.

P/E ratio.

As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims? Creditors Bondholders Preferred stockholders Common stockholders

Common stockholders

Which of these are valued as a special zero-growth case of the constant growth rate model? Common stock Preferred stock Future dividends Future stock prices

Preferred stock

Which of the following indices best reflects the ten sectors of the economy? Nasdaq Composite Dow Jones Industrial Average Standard & Poor's 500 None of these

Standard & Poor's 500

Which of the following statements is incorrect? Trading at the New York Stock Exchange and the American Stock Exchange are done by open outcry. Dealers create market liquidity in the Nasdaq's electronic market. The Dow Jones Industrial Average includes 35 of the largest companies in the United States. The Nasdaq contains many very large technology firms.

The Dow Jones Industrial Average includes 35 of the largest companies in the United States.

Which of the following is incorrect with respect to limit orders? They can be used only to buy stock. If the current quote does not meet the price cited in the limit order, the trade is not executed. The advantage of the limit order is that the investor makes the trade at the desired price. The disadvantage of the limit order is that the trade might not be executed at all.

They can be used only to buy stock.

We often use the P/E ratio model with the firm's growth rate to estimate: required rates of return. inflation. a stock's current price. a stock's future price.

a stock's future price.

Individuals who use their own stock inventory and capital to buy and sell the stocks they represent are called: market makers. brokers. investors. none of these.

market makers

Investors buy stock at the: dealer price. bid price. quoted ask price. broker price.

quoted ask price.