Exam 2 FIN**

"A firm has a current EPS of $2.54 and a benchmark PE of 16.4. Earnings are expected to grow 3.8 percent annually. What is the target stock price in one year? A. $43.24 B. $42.89 C. $46.08 D. $41.66 E. $48.09"

a

"Alfonzo's Italian House has 25,000 shares of stock outstanding with a par value of $1 per share and a market price of $28 a share. The firm just announced a 5-for-3 stock split. What will the market price per share be after the split? A. $16.80 B. $21.60 C. $28.00 D. $46.67 E. $56.00"

a

"An agent who arranges a transaction between a buyer and a seller of equity securities is called a: A. Broker. B. Floor trader. C. Capitalist. D. Principal. E. Dealer."

a

"An individual on the floor of the NYSE who owns a trading license and buys and sells for his or her personal account is called a: A. Floor trader. B. Exchange customer. C. Specialist. D. Floor broker. E. Market maker."

a

"Cooper Brands has 72,000 shares of stock outstanding at a market price of $58.60 a share. The company just announced a 5-for-4 stock split. What will be the market price per share after the split? A. $46.88 B. $58.20 C. $62.12 D. $73.25 E. $82.50"

a

"Crystal Glass recently paid $3.60 as an annual dividend. Future dividends are projected at $3.80, $4.10, and $4.25 over the next three years, respectively. Beginning four years from now, the dividend is expected to increase by 3.25 percent annually. What is one share of this stock worth to you today if you require a 12.5 percent rate of return on similar investments? A. $42.92 B. $43.40 C. $45.12 D. $45.88 E. $46.50"

a

"Currently, a firm has a benchmark PE of 18.7 and an EPS of $4.18. Earnings are expected to grow 3.2 percent annually. What is the implicit stock return? A. 3.20 percent B. 2.89 percent C. 4.08 percent D. 3.67 percent E. 4.23 percent"

a

"Dee's made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.94 a share. Secondly, all dividends after that will decrease by 1.25 percent annually. What is the value of this stock at a discount rate of 14.5 percent? A. $12.32 B. $12.10 C. $14.82 D. $14.51 E. $14.21"

a

"Electric Utilities just issued some new preferred stock. The issue will pay a $20 annual dividend in perpetuity beginning 10 years from now. What is one share of this stock worth today if the market requires a return of 9 percent on this investment? A. $102.32 B. $104.16 C. $109.08 D. $141.41 E. $151.43"

a

"Gee-Gee common stock returned a nifty 21.6 percent rate of return last year. The dividend amount was $.25 a share which equated to a dividend yield of 1.01 percent. What was the rate of price appreciation for the year? A. 20.59 percent B. 21.38 percent C. 23.60 percent D. 22.87 percent E. 21.52 percent"

a

"Global Logistics just announced it is increasing its annual dividend to $1.68 next year and establishing a policy whereby the dividend will increase by 3.25 percent annually thereafter. How much will one share of this stock be worth ten years from now if the required rate of return is 13.5 percent? A. $22.57 B. $21.68 C. $26.51 D. $27.02 E. $27.37"

a

"Green Roof Motels has more cash on hand than its operations require. Thus, the firm has decided to pay out some of its earnings in the form of cash to its shareholders. What are these payments to shareholders called? A. Dividends B. Stock payments C. Repurchases D. Payments-in-kind E. Stock splits"

a

"HCC, Inc., is experiencing rapid growth. The company expects dividends to grow at 25 percent per year for the next seven years before leveling off to 7 percent into perpetuity. The required return on the stock is 11 percent. What is the current stock price if the annual dividend per share that was just paid was $1.05? A. $76.67 B. $64.36 C. $67.37 D. $72.11 E. $75.19"

a

"Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders? A. Right to share in company profits prior to other shareholders. B. Right to elect the corporate directors. C. Right to vote on proposed mergers. D. Right to all residual income after the common dividends have been paid. E. Right to a permanent seat on the board of directors."

a

"Hi-Tek is a young start-up company. No dividends will be paid on the stock over the next 15 years, because the firm needs to plow back its earnings to fuel growth. The company plans to pay a $6 per share dividend in 16 years and will increase the dividend by 4 percent per year thereafter. What is the current share price if the required return on this stock is 16 percent? A. $5.40 B. $5.62 C. $8.59 D. $50.00 E. $52.00"

a

"Hot Teas common stock is currently selling for $41.04. The last annual dividend paid was $1.31 per share and the market rate of return is 11.2 percent. At what rate is the dividend growing? A. 7.76 percent B. 6.67 percent C. 8.42 percent D. 8.60 percent E. 6.10 percent"

a

"Jenningston Mills has a market value equal to its book value. Currently, the firm has excess cash of $1,200, other assets of $5,800, and equity valued at $3,750. The firm has 250 shares of stock outstanding and net income of $420. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase? A. $1.83 B. $1.89 C. $1.96 D. $2.00 E. $2.08"

a

"Kurt's Market has 22,000 shares of stock outstanding with a par value of $1 per share and a market value of $17 per share. The balance sheet shows $22,000 in the common stock account, $236,000 in the capital in excess of par account, and $336,800 in the retained earnings account. The firm just announced a stock dividend of 60 percent. What will be the balance in the retained earnings account after this dividend? A. $323,600 B. $336,800 C. $348,700 D. $125,600 E. $112,400"

a

"Morris Companies has an issue of preferred stock outstanding that pays a $7.75 dividend every year in perpetuity. What is the required return if this issue currently sells for $68.19 per share? A. 11.37 percent B. 11.72 percent C. 11.80 percent D. 11.86 percent E. 10.95 percent"

a

"Plyler Cabinets declared a dividend of $1.20 a share on May 15 to holders of record on Monday, June 1. The dividend is payable on June 15. Sara purchased 500 shares of Plyler Cabinets stock on Friday, May 29. How much dividend income will she receive on June 15 from Plyler Cabinets? A. $0 B. $300 C. $450 D. $150 E. $600"

a

"Randall's, Inc. has 20,000 shares of stock outstanding with a par value of $1 per share. The market value is $12 per share. The balance sheet shows $42,000 in the capital in excess of par account, $20,000 in the common stock account, and $50,500 in the retained earnings account. The firm just announced a 5 percent (small) stock dividend. What will be the balance in the retained earnings account after the dividend? A. $38,500 B. $39,500 C. $50,500 D. $61,500 E. $62,500"

a

"South Shore Limited has 21,000 shares of stock outstanding with a par value of $1 per share and a market price of $77.50 a share. The firm just announced a 5-for-2 stock split. What will the par value of the stock be after the split? A. $.40 B. $.80 C. $1.00 D. $5.00 E. $2.50"

a

"Stock splits can be used to: A. Adjust the market price of a stock so it falls within a preferred trading range. B. Decrease the excess cash held by a firm thereby lowering agency costs. C. Increase the par value while decreasing the market price per share. D. Increase the total equity of a firm. E. Adjust the debt-equity ratio."

a

"Sweatshirts Ltd. is downsizing. The company paid a $3.80 annual dividend last year and has announced plans to lower the dividend by 30 percent each year. Once the dividend amount becomes zero, the company will go out of business. You have a required rate of return of 18 percent on this particular stock given the company's situation. What are your shares in this firm worth today on a per share basis? A. $5.54 B. $6.91 C. $3.68 D. $1.29 E. $2.11"

a

"The Green Fiddle has declared a $5 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Green Fiddle stock sells for $71.50 per share, and the stock is about to go ex-dividend. What will be the ex-dividend price? A. $67.25 B. $67.90 C. $78.30 D. $79.50 E. $82.23"

a

"The Shore Hotel just paid a dividend of $2 per share. The company will increase its dividend by 6 percent next year and will then reduce its dividend growth rate by 2 percentage points per year until it reaches the industry average of 2 percent dividend growth, after which the company will keep a constant growth rate forever. What is the price of this stock today given a required return of 12 percent? A. $21.58 B. $28.99 C. $31.83 D. $22.06 E. $26.47"

a

"The common stock of Water Town Mills pays an annual dividend of $1.84 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 13.6 percent annual return? A. $13.53 B. $14.01 C. $14.56 D. $13.79 E. $13.28"

a

"The current dividend yield on CJ's common stock is 1.89 percent. The company just paid a $1.23 annual dividend and announced plans to pay $1.27 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock? A. 5.14 percent B. 5.82 percent C. 6.08 percent D. 6.39 percent E. 6.75 percent"

a

13. A bond that can be paid off early at the issuer's discretion is referred to as being which one of the following? A. zero coupon B. callable C. senior D. collateralized E. unsecured Refer to section 7.2

b

"The market value balance sheet for Cherry Pie Corp. reflects a cash of $22,000, fixed assets of $209,000, and equity of $231,000. There are 5,000 shares of stock outstanding with a par value of $1 per share. The company has announced that it is going to repurchase $18,000 worth of stock. What will the price of the stock be after this repurchase? A. $46.20 B. $36.60 C. $39.20 D. $42.60 E. $43.80"

a

"Verbal Communications, Inc., has 12,500 shares of stock outstanding with a par value of $1 per share and a market value of $27 per share. The firm just announced a stock dividend of 100 percent. What is the market value per share after the dividend? A. $13.50 B. $40.50 C. $27.00 D. $46.00 E. $54.00"

a

"Which one of the following favors a low dividend policy? A. The tax on capital gains is deferred until the gain is realized. B. Few, if any, positive net present value projects are available to a firm. C. A majority of the shareholders have a low tax rate. D. A majority of the shareholders have better investment opportunities than the firm. E. The presence of an agency conflict with the firm's senior managers."

a

"Which one of the following statements related to the NYSE is correct? A. Exchange members must purchase trading licenses. B. NYSE shareholders currently own ""seats"" on the exchange. C. DMM's buy at the asked price. D. The NYSE is privately owned by an investment firm. E. Electronic trading has increased the demand for floor brokers."

a

1. Mary just purchased a bond which pays $60 a year in interest. What is this $60 called? A. coupon B. face value C. discount D. call premium E. yield Refer to section 7.1

a

107. The yield to maturity on a bond is currently 8.46 percent. The real rate of return is 3.22 percent. What is the rate of inflation? A. 5.08 percent B. 5.64 percent C. 6.24 percent D. 6.53 percent E. 6.71 percent

a

110. You have won a contest and will receive $2,500 a year in real terms for the next 3 years. Each payment will be received at the end of the period with the first payment occurring one year from today. The relevant nominal discount rate is 6.3 percent and the inflation rate is 4.5 percent. What are your winnings worth today? A. $7,249 B. $7,367 C. $7,401 D. $7,500 E. $7,838

a

24. Real rates are defined as nominal rates that have been adjusted for which of the following? A. inflation B. default risk C. accrued interest D. interest rate risk E. both inflation and interest rate risk Refer to section 7.6

a

31. Which one of the following risk premiums compensates for the possibility of nonpayment by the bond issuer? A. default risk B. taxability C. liquidity D. inflation E. interest rate risk Refer to section 7.7

a

60. The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as: A. 0.05/(1 - t*) = 0.07. B. 0.05 - (1 - t*) = 0.07. C. 0.07 + (1 - t*) = 0.05. D. 0.05 ´ (1 - t*) = 0.07. E. 0.05 ´ (1 + t*) = 0.07. Refer to section 7.4

a

71. Which of the following correctly describe U.S. Treasury bonds? I. have a "tick" size of 1/32 II. highly liquid III. quoted in dollars and cents IV. quoted at the dirty price A. I and II only B. I and IV only C. II and III only D. II and IV only E. I, II, and III only Refer to section 7.5

a

81. Greenbrier Industrial Products' bonds have a 7.60 percent coupon and pay interest annually. The face value is $1,000 and the current market price is $1,062.50 per bond. The bonds mature in 16 years. What is the yield to maturity? A. 6.94 percent B. 7.22 percent C. 7.46 percent D. 7.71 percent E. 7.80 percent This cannot be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that your answer is correct.

a

85. Grand Adventure Properties offers a 9.5 percent coupon bond with annual payments. The yield to maturity is 11.2 percent and the maturity date is 11 years from today. What is the market price of this bond if the face value is $1,000? A. $895.43 B. $896.67 C. $941.20 D. $946.18 E. $953.30

a

91. A 16-year, 4.5 percent coupon bond pays interest annually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield to maturity rises to 5.7 percent from the current rate of 5.5 percent? A. 2.14 percent decrease B. 1.97 percent decrease C. 0.21 percent increase D. 1.97 percent increase E. 2.14 percent increase

a

97. A 10-year, 4.5 percent, semiannual coupon bond issued by Tyler Rentals has a $1,000 face value. The bond is currently quoted at 98.7. What is the clean price of this bond if the next interest payment will occur 2 months from today? A. $987.00 B. $994.50 C. $1,002.00 D. $1,011.25 E. $1,022.50 Clean price = 0.987 ´ $1,000 = $987

a

"A company has four open seats on its board of directors. There are seven candidates vying for these four positions. There will be a single election to determine the winners. As the owner of 100 shares of stock, you will receive one vote per share for each open seat. You decide to cast all 400 of your votes for a single candidate. What is this type of voting called? A. Democratic. B. Cumulative. C. Straight. D. Deferred. E. Proxy."

b

"Aaron owns 1,600 shares of LP Gas stock which he purchased six years ago at a price of $18 a share. Today, these shares are selling for $26 each. Aaron is subject to a tax rate of 20 percent on both his dividend income and his capital gains. Ignore costs. From Aaron's point of view, a stock repurchase today: A. Is equivalent to a cash dividend. B. Is more desirable than a cash dividend in respect to taxes. C. Will result in the same tax liability as an equivalent cash dividend. D. Is more highly taxed than a cash dividend. E. Is totally unacceptable to him."

b

"All else equal, the market value of a stock will tend to decrease by roughly the aftertax value of the dividend on the: A. Dividend declaration date. B. Ex-dividend date. C. Date of record. D. Date of payment. E. Day after the date of payment."

b

"An investor is more likely to prefer a high dividend payout if a firm: A. Has high flotation costs. B. Has few, if any, positive net present value projects. C. Has lower tax rates than the investor. D. Has a stock price that is increasing rapidly. E. Offers substantial gains on its equities, which are taxed at a favorable rate."

b

"Billingsley United declared a $.20 a share dividend on Thursday, October 16. The dividend will be paid on Monday, November 10, to shareholders of record on Friday, October 31. Which one of the following is the ex-dividend date? A. Tuesday, October 28 B. Wednesday, October 29 C. Thursday, October 30 D. Wednesday, November 5 E. Thursday, November 6"

b

"Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company: A. Must always show a current liability of $2,400, ($2.40 ´1,000), for dividends payable. B. Must still declare each dividend before it becomes an actual company liability. C. Is obligated to pay $2.40 per share each year in perpetuity. D. Will be declared in default if it does not pay at least $2.40 per share per year on a timely basis. E. Has a liability that must be paid at a later date should the company miss paying an annual dividend payment."

b

"East Coast Marina has 148,000 shares of stock outstanding. The current market value of the firm is $11.68 million. The company has capital in excess of par value of $1.7 million and a common stock account value of $148,000. The company is planning a stock split of 5-for-3 What will the market price per share be after the split? A. $28.67 B. $47.35 C. $66.67 D. $116.67 E. $131.53"

b

"Farm Machinery stock currently sells for $65 per share. The market requires a return of 14 percent while the company maintains a constant 8 percent growth rate in dividends. What was the most recent annual dividend per share paid on this stock? A. $3.00 B. $3.61 C. $3.67 D. $3.75 E. $3.91"

b

"Flo's Flowers pays an annual dividend that is expected to increase by 2.1 percent per year. The stock commands a market rate of return of 13.8 percent and sells for $19.06 a share. What is the expected amount of the next dividend? A. $2.03 B. $2.23 C. $2.37 D. $2.32 E. $2.28"

b

"Frozen Foods just paid out $3.62 a share to its shareholders. The cash for these payments came from a large sale of assets, not from any earnings of the firm. What are these payments to shareholders called? A. Dividends B. Distributions C. Repurchases D. Payments-in-kind E. Stock splits"

b

"GEO Inc. has paid annual dividends of $.41, $.47, and $.52 a share over the past three years, respectively. The company now predicts that it will maintain a constant dividend since its business has leveled off and sales are expected to remain relatively flat. Given the lack of future growth, you will only buy this stock if you can earn at least a rate of return of 16 percent. What is the maximum amount you are willing to pay for one share of this stock today? A. $2.85 B. $3.25 C. $2.43 D. $3.09 E. $3.18"

b

12. A sinking fund is managed by a trustee for which one of the following purposes? A. paying interest payments B. early bond redemption C. converting bonds into equity securities D. paying preferred dividends E. reducing coupon rates

b

"Home Parties is paying an annual dividend of $1.25 every other year. The last dividend was paid last year. The firm will continue this policy until two more dividend payments have been paid. One year after the last normal dividend payment, the company plans to pay a final liquidating dividend of $25 per share. What is the current market value of this stock if the required return is 17 percent? A. $18.92 B. $15.19 C. $13.16 D. $17.14 E. $17.53"

b

"If you ignore taxes and costs, a stock repurchase will: A. Increase the total assets of the firm. B. Increase the earnings per share. C. Increase the total equity of the firm. D. Reduce the PE ratio more than an equivalent stock dividend. E. Not affect the firm's total assets."

b

"Jean's Warehouse has 16,000 shares of stock outstanding. The current market value of the firm is $768,000. The company has retained earnings of $130,000, paid in surplus of $321,000, and a common stock account value of 16,000. The company is planning a 5-for-3 stock split. What will the retained earnings account value be after the split? A. $73,800 B. $130,000 C. $153,600 D. $205,000 E. $245,500"

b

"Kate purchased 500 shares of Fast Deliveries stock on Wednesday, July 7. Ted purchased 100 shares of Fast Deliveries stock on Thursday, July 8. Fast Deliveries declared a dividend on June 20 to shareholders of record on July 12 and payable on August 1. Which one of the following statements concerning the dividend paid on August 1 is correct given this information? A. Neither Kate nor Ted is entitled to the dividend. B. Kate is entitled to the dividend but Ted is not. C. Ted is entitled to the dividend but Kate is not. D. Both Ted and Kate are entitled to the dividend. E. Both Ted and Kate are entitled to one-half of the dividend amount."

b

"Kay's Sewing Loft is expecting a period of intense growth and has decided to retain more of its earnings to help finance that growth. As a result, it is going to reduce its annual dividend by 10 percent a year for the next two years. After that, it will maintain a constant dividend of $2 a share. Last year, the company paid a $3 dividend per share. What is the market value of this stock if the required rate of return is 12.5 percent? A. $14.63 B. $16.96 C. $18.08 D. $19.61 E. $18.84"

b

"Mario's has 18,000 shares of stock outstanding with a par value of $1 per share and a market price of $4 a share. The balance sheet shows $18,000 in the common stock account, $368,000 in the capital in excess of par value account, and $64,000 in the retained earnings account. The firm just announced a 5-for-1 stock split. What will the paid in surplus account value be after the split? A. $336,000 B. $368,000 C. $426,000 D. $548,000 E. $606,000"

b

"New Products pays no dividend at the present time. Starting in Year 3, the firm will pay a $.25 dividend per share for two years. After that, the company plans on paying a constant $.75 a share annual dividend indefinitely. How much should you pay per share to purchase this stock today at a required return of 13.8 percent? A. $3.78 B. $3.56 C. $4.37 D. $4.71 E. $4.98"

b

"Prezario's has 25,000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $847,000. Currently, the retained earnings account balance is $428,000 and the capital in excess of par value account balance is $187,000. The company just announced a 4-for-1 stock split. What is the common stock account balance after the stock split? A. $8,333 B. $25,000 C. $75,000 D. $77,333 E. $232,000"

b

"Revol-Tech is a technology firm with excellent growth prospects. The firm wishes to do something to acknowledge the loyalty of the shareholders but needs all of its available cash to fund the firm's rapid growth. The market price of the stock is currently trading at the upper end of its preferred trading range. The firm is most apt to consider which one of the following in this situation? A. Liquidating dividend B. Stock split C. Reverse stock split D. Extra cash dividend E. Special cash dividend"

b

"Suppose you know a company's stock currently sells for $85 per share and the required return is 10 percent. You also know that the total return on the stock is evenly divided between the capital gains yield and the dividend yield. What is the current dividend per share if it's the company's policy to always maintain a constant growth rate in its dividends? A. $4.25 B. $4.05 C. $4.37 D. $4.50 E. $4.64"

b

"The Green Florist has 44,000 shares of stock outstanding with a par value of $1 per share and a market value of $12.60 a share. The company just announced a 2-for-5 reverse stock split. Currently, you own 700 shares of this stock. How many shares will you own after the reverse stock split? A. 140 shares B. 280 shares C. 480 shares D. 1,600 shares E. 1,750 shares"

b

"The Peanut Shack has 6,500 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $145,600. The company just announced a 5-for-3 stock split. What will the market price per share be after the split? A. $37.33 B. $13.44 C. $16.18 D. $28.20 E. $14.93"

b

"The Sly Fox pays a constant dividend of $1.46 a share. The company announced today that it will continue to pay the dividend for another two years and then in year 3 it will pay a final liquidating dividend of $15.25 a share. What is one share of this stock worth today at a required return of 18.5%? A. $12.92 B. $11.44 C. $12.07 D. $13.09 E. $14.20"

b

"The Turtle Cave currently has 160,000 shares of stock outstanding that sell for $60 per share. Assume no market imperfections or tax effects exist. What will be the new share price if the firm declares a stock dividend of 10 percent? A. $52.17 B. $54.55 C. $60.00 D. $64.50 E. $69.00"

b

"The UpTowner just paid a $3.45 annual dividend. The company has a policy of increasing the dividend by 4.5 percent annually. You would like to purchase 100 shares of stock in this firm but realize that you will not have the funds to do so for another four years. If you require a 14.8 percent rate of return, how much will you be willing to pay per share for the 100 shares when you can afford to make this investment? A. $42.50 B. $41.74 C. $43.12 D. $38.78 E. $44.47"

b

"The common stock of Dayton Dry Goods has historically had a low dividend yield that is expected to continue. As a result, the majority of its shareholders are individuals who prefer capital gains over cash dividends for tax reasons. The fact that most of these shareholders have similar characteristics is referred to by which one of the following terms? A. Information content effect B. Clientele effect C. Investor effect D. Distribution effect E. Market reaction effect"

b

"The common stock of Dayton Repair sells for $43.19 a share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The firm has established a pattern of increasing its dividends by 2.15 percent annually and expects to continue doing so. What is the market rate of return on this stock? A. 7.59 percent B. 7.43 percent C. 7.67 percent D. 7.14 percent E. 7.28 percent"

b

"The equity of Blooming Roses has a total market value of $16,000. Currently, the firm has excess cash of $1,400 and net income of $15,400. There are 750 shares of stock outstanding. What will be the percentage change in the stock price per share if the firm pays out all of its excess cash as a cash dividend? A. -9.4 percent B. -8.7 percent C. -7.5 percent D. -2.8 percent E. 0 percent"

b

"The ex-dividend date is defined as _____ business day(s) before the date of record. A. 1 B. 2 C. 3 D. 5 E. 10"

b

"The market value balance sheet for MZ Toys reflects cash of $238,000, fixed assets of $420,000, debt of $210,000, and equity of $448,000. The firm declared a 15 percent stock dividend and tomorrow is the ex-dividend date (the chronology for a stock dividend is similar to that for a cash dividend). There are 15,000 shares outstanding. What is the ex-dividend stock price? A. $23.51 B. $25.97 C. $25.51 D. $35.14 E. $29.87"

b

"The owner of a trading license for the NYSE is called a: A. Broker. B. Member. C. Agent. D. Specialist. E. Dealer."

b

"Three Corners Markets paid an annual dividend of $1.37 a share last month. Today, the company announced that future dividends will be increasing by 2.8 percent annually. If you require a return of 11.6 percent, how much are you willing to pay to purchase one share of this stock today? A. $18.23 B. $16.00 C. $16.67 D. $17.68 E. $15.57"

b

"Timber Co. is a mature manufacturing firm. The company just paid a $5.40 annual dividend and management expects to reduce the payout by 9 percent each year, indefinitely. How much are you willing to pay today per share to buy this stock if you require a return of 14.5 percent? A. $34.79 B. $20.91 C. $18.27 D. $89.35 E. $98.18"

b

"What is the model called that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate? A. Zero growth. B. Dividend growth. C. Capital pricing. D. Earnings capitalization. E. Discounted dividend."

b

"Which one of the following applies to the dividend growth model? A. An individual stock has the same value to every investor. B. Even if the dividend amount and growth rate remain constant, the value of a stock can vary. C. Zero-growth stocks have no market value. D. Stocks that pay the same annual dividend will have equal market values. E. The dividend growth rate is inversely related to a stock's market price."

b

"Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding? A. Special dividend B. Stock split C. Share repurchase D. Rights offer E. Liquidating dividend"

b

"Which one of the following involves a payment in shares by a stock issuer that increases the number of shares a shareholder owns but also decreases the value per share? A. Cash dividend B. Stock dividend C. Stock repurchase D. Stock split E. Reverse stock split"

b

"Which one of the following is the best justification for a reverse stock split? A. Improve the stock's respectability. B. Avoid delisting. C. Reduce transaction costs for shareholders. D. Improve the stock's liquidity. E. Increase the par value per share."

b

"Which one of the following is the electronic system used by the NYSE for directly transmitting orders to specialists? A. DMM post. B. SuperDOT. C. DMM. D. SLP. E. OrderNET."

b

"Which one of the following statements related to cash dividends is correct? A. Extra cash dividends cannot be repeated in the future. B. A dividend is never a liability of the issuer until it has been declared. C. If a firm has paid regular quarterly dividends for at least five consecutive years, it is legally obligated to continue doing so. D. Regular cash dividends reduce paid-in capital. E. The dividend yield expresses the annual dividend as a percentage of net income."

b

"Winston Co. has a dividend-paying stock with a total return for the year of -6.5 percent. Which one of the following must be true? A. The dividend must be constant. B. The stock has a negative capital gains yield. C. The dividend yield must be zero. D. The required rate of return for this stock increased over the year. E. The firm is experiencing supernormal growth."

b

"You want to purchase some shares of JJ Farms stock but need a 14.5 percent rate of return to compensate for the perceived risk. What is the maximum you are willing to spend per share to buy this stock if the company pays a constant $1.25 annual dividend per share? A. $9.11 B. $8.62 C. $9.26 D. $9.38 E. $8.47"

b

$1.00"

b

100. A corporate bond is quoted at a price of 103.16 and carries a 6.50 percent coupon. The bond pays interest semiannually. What is the current yield on one of these bonds? A. 6.24 percent B. 6.30 percent C. 6.36 percent D. 6.62 percent E. 6.66 percent Current yield = (0.065 ´ $1,000)/(1.0316 ´ $1,000) = 6.30 percent

b

103. The semiannual, 8-year bonds of Alto Music are selling at par and have an effective annual yield of 8.6285 percent. What is the amount of each interest payment if the face value of the bonds is $1,000? A. $41.50 B. $42.25 C. $43.15 D. $85.00 E. $86.29

b

108. A zero coupon bond with a face value of $1,000 is issued with an initial price of $212.56. The bond matures in 25 years. What is the implicit interest, in dollars, for the first year of the bond's life? A. $12.72 B. $13.58 C. $13.90 D. $15.63 E. $15.89

b

111. You purchased an investment which will pay you $8,000, in real dollars, a year for the next three years. Each payment will be received at the end of the period with the first payment occurring one year from today. The nominal discount rate is 7.5 percent and the inflation rate is 2.9 percent. What is the present value of these payments? A. $21,720 B. $22,004 C. $22,511 D. $23,406 E. $23,529

b

15. A deferred call provision is which one of the following? A. requirement that a bond issuer pay the current market price, plus accrued interest, should the firm decide to call a bond B. ability of a bond issuer to delay repaying a bond until after the maturity date should the issuer so opt C. prohibition placed on an issuer which prevents that issuer from ever redeeming bonds prior to maturity D. prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date E. requirement that a bond issuer pay a call premium which is equal to or greater than one year's coupon should that issuer decide to call a bond Refer to section 7.2

b

2. Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called? A. coupon B. face value C. discount D. yield E. dirty price Refer to section 7.1

b

29. The interest rate risk premium is the: A. additional compensation paid to investors to offset rising prices. B. compensation investors demand for accepting interest rate risk. C. difference between the yield to maturity and the current yield. D. difference between the market interest rate and the coupon rate. E. difference between the coupon rate and the current yield. Refer to section 7.7

b

33. The liquidity premium is compensation to investors for: A. purchasing a bond in the secondary market. B. the lack of an active market wherein a bond can be sold for its actual value. C. acquiring a bond with an unfavorable tax status. D. redeeming a bond prior to maturity. E. purchasing a bond that has defaulted on its coupon payments. Refer to section 7.7

b

34. An 8 percent corporate bond that pays interest semi-annually was issued last year. Which two of the following most likely apply to this bond today if the current yield-to-maturity is 7 percent? I. a structure as an interest-only loan II. a current yield that equals the coupon rate III. a yield-to-maturity equal to the coupon rate IV. a market price that differs from the face value A. I and III only B. I and IV only C. II and III only D. II and IV only E. III and IV only Refer to section 7.1

b

44. Which one of the following bonds is the least sensitive to interest rate risk? A. 3-year 4 percent coupon B. 3-year 6 percent coupon C. 5-year 6 percent coupon D. 7-year 6 percent coupon E. 7-year 4 percent coupon Refer to section 7.1

b

45. As a bond's time to maturity increases, the bond's sensitivity to interest rate risk: A. increases at an increasing rate. B. increases at a decreasing rate. C. increases at a constant rate. D. decreases at an increasing rate. E. decreases at a decreasing rate. Refer to section 7.1

b

49. Which of the following statements concerning bonds are correct? I. Bonds provide tax benefits to issuers. II. The risk of a firm financially failing increases when the firm issues bonds. III. Most long-term bond issues are referred to as unfunded debt. IV. All bonds are treated equally in a bankruptcy proceeding. A. II and III only B. I and II only C. III and IV only D. II and IV only E. I, II, and III only Refer to section 7.2

b

53. Which of the following are negative covenants that might be found in a bond indenture? I. The company shall maintain a current ratio of 1.10 or better. II. No debt senior to this issue can be issued. III. The company cannot lease any major assets without approval by the lender. IV. The company must maintain the loan collateral in good working order. A. I and II only B. II and III only C. III and IV only D. II, III, and IV only E. I, II, and III only Refer to section 7.2

b

62. Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond? A. real rate risk B. interest rate risk C. default risk D. liquidity risk E. taxability risk Refer to section 7.4

b

65. Recently, you discovered a putable income bond that is convertible. If you purchase this bond, you will have the right to do which of the following? I. force the issuer to repurchase the bond prior to maturity II. choose when you wish to receive interest payments III. convert the bond into a TIPS IV. convert the bond into equity shares A. I and III only B. I and IV only C. II and III only D. III and IV only E. I, II, and IV only Refer to section 7.4

b

68. Al is retired and enjoys his daily life. His one concern is that his bonds provide a steady stream of income that will continue to allow him to have the money he desires to continue his active lifestyle without lowering his present standard of living. Although he has sufficient principal to live on, he only wants to spend the interest income provided by his holdings and thus is concerned about the purchasing power of that income. Which one of the following bonds should best ease Al's concerns? A. 6-year, putable, high coupon bond B. 5-year TIPS C. 10-year AAA coupon bond D. 5-year municipal bond E. 7- year income bond Refer to section 7.4

b

73. Today, June 15, you want to buy a bond with a quoted price of 98.64. The bond pays interest on January 1 and July 1. Which one of the following prices represents your total cost of purchasing this bond today? A. clean price B. dirty price C. asked price D. quoted price E. bid price Refer to section 7.5

b

79. Which two of the following factors cause the yields on a corporate bond to differ from those on a comparable Treasury security? I. inflation risk II. interest rate risk III. taxability IV. default risk A. I and II only B. III and IV only C. I, II, and IV only D. II, III, and IV only E. I, II, III, and IV Refer to sections 7.4 and 7.7

b

8. Atlas Entertainment has 15-year bonds outstanding. The interest payments on these bonds are sent directly to each of the individual bondholders. These direct payments are a clear indication that the bonds can accurately be defined as being issued: A. at par. B. in registered form. C. in street form. D. as debentures. E. as callable. Refer to section 7.2

b

83. Oil Well Supply offers 7.5 percent coupon bonds with semiannual payments and a yield to maturity of 7.68 percent. The bonds mature in 6 years. What is the market price per bond if the face value is $1,000? A. $989.70 B. $991.47 C. $996.48 D. $1,002.60 E. $1,013.48

b

"A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market? A. Auction. B. Private. C. Over-the-counter. D. Regional. E. Insider."

c

"A small stock dividend is defined as a stock dividend of less than _____ percent. A. 10 to 15 B. 15 to 20 C. 20 to 25 D. 25 to 30 E. 30 to 35"

c

86. Redesigned Computers has 5.25 percent coupon bonds outstanding with a current market price of $546.19. The yield to maturity is 16.28 percent and the face value is $1,000. Interest is paid semiannually. How many years is it until these bonds mature? A. 6.64 years B. 7.08 years C. 12.41 years D. 14.16 years E. 28.32 years It's easiest to solve this problem using a financial calculator. You can then use the calculator answer as the time period in the formula just to verify that your answer is correct. The number of six-month periods is 14.16. The number of years is 7.08 years.

b

87. Global Communications has a 7 percent, semiannual coupon bond outstanding with a current market price of $1,023.46. The bond has a par value of $1,000 and a yield to maturity of 6.72 percent. How many years is it until this bond matures? A. 12.26 years B. 12.53 years C. 18.49 years D. 24.37 years E. 25.05 years It's easiest to solve this problem using financial calculator. You can then use the calculator answer as the time period in the formula just to verify that your answer is correct. The number of six-month periods is 25.052. The number of years is 12.53 years.

b

95. The 7 percent, semi-annual coupon bonds offered by House Renovators are callable in 2 years at $1,054. What is the amount of the call premium on a $1,000 par value bond? A. $52 B. $54 C. $72 D. $84 E. $89 Call premium = $1,054 - $1,000 = $54

b

96. A corporate bond was quoted yesterday at 102.16 while today's quote is 102.19. What is the change in the value of a bond that has a face value of $6,000? A. $0.30 B. $1.80 C. $3.00 D. $18.00 E. $180.00 Market price = (1.0219 - 1.0216) ´ $6,000 = $1.80

b

"A $.45 quarterly cash payment paid by Jones & Co. to its shareholders in the normal course of business is called a: A. Repurchase B. Liquidating dividend C. Regular cash dividend D. Special dividend E. Extra cash dividend"

c

"A firm wants to maintain a stock price around $15 a share. Due to a recent market downturn, the stock is currently selling for $6 a share. The firm should consider a: A. 3-for-1 stock split. B. 4-for-1 stock split. C. 1-for-3 reverse stock split. D. 1-for-4 reverse stock split. E. 1-for-5 reverse stock split."

c

"A floor broker on the NYSE does which one of the following? A. Supervises the commission brokers of a specific financial firm. B. Trades for his or her personal inventory. C. Executes orders on behalf of a commission broker. D. Maintains an inventory and assumes the role of a market maker. E. Is charged with maintaining a liquid, orderly market."

c

"A forward PE is based on: A. the last dividend payment multiplied by 2. B. historical earnings. . C. estimated future earnings. D. industry averages. E. the last four quarterly dividend payments."

c

"A large stock dividend: A. Reduces retained earnings by the total market value of the issued shares. B. Reduces the par value per share. C. Reduces retained earnings by the par value of each share issued. D. Increases the capital in excess of par value by the market value minus the par value of each share issued. E. Does not affect the equity accounts or the par value per share."

c

"A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a: A. Floor trader. B. Floor post. C. designated market maker. D. Floor broker. E. Commission broker."

c

"A preferred stock pays an annual dividend of $6.75 and sells for $58.60 a share. What is the rate of return on this security? A. 9.38 percent B. 9.63 percent C. 11.52 percent D. 10.72 percent E. 11.84 percent"

c

"A preferred stock sells for $54.45 a share and provides a return of 9.826 percent. What is the amount of the dividend per share? A. $5.45 B. $5.25 C. $5.35 D. $5.60 E. $5.50"

c

"Aaron purchased 200 shares of KMP stock on May 8. On May 16, he purchased another 300 shares and then on May 20 he purchased a final 100 shares of KMP stock. The company declared a dividend of $1.22 a share on May 6 to holders of record on Friday, May 22. The dividend is payable on June 12. How much dividend income will Steve receive on June 12? A. $732 B. $540 C. $610 D. $310 E. $244"

c

"Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect: A. An increase in all stock values. B. All stock values to remain constant. C. A decrease in all stock values. D. Dividend-paying stocks to maintain a constant price while non-dividend paying stocks decrease in value. E. Dividend-paying stocks to increase in price while non-dividend paying stocks remain constant in value."

c

"Arcs and Triangles paid an annual dividend of $1.47 a share last month. The company is planning on paying $1.55, $1.63, and $1.65 a share over the next three years, respectively. After that, the dividend will be constant at $1.70 per share per year. What is the market price of this stock if the market rate of return is 11 percent? A. $13.98 B. $14.07 C. $15.23 D. $17.16 E. $13.10"

c

"As of 2014, dividend income received by an individual: A. Is taxed at a constant 10 percent rate for all tax filers. B. Is exempt from federal income tax. C. Is taxed at a maximum rate of 20 percent. D. Is taxed at a flat rate of 15 percent. E. Is exempt from federal taxation unless the amount exceeds $5,000."

c

"Bell Weather Markets has recently sold for as little as $8 a share and as much as $15 a share. The difference between these two prices is referred to as the: A. Price variance. B. Bid-ask spread. C. Trading range. D. Opening price. E. Closing price."

c

"Currently, a firm has an EPS of $2.54 and a benchmark PE of 16.4. Earnings are expected to grow 3.8 percent annually. What is the estimated current stock price? A. $42.89 B. $46.08 C. $41.66 D. $48.09 E. $43.24"

c

"DT Motors paid its first annual dividend yesterday in the amount of $.15 a share. The company plans to double the dividend in each of the next 3 years. Starting in year 4, the firm plans to pay $1.50 a share indefinitely. What is one share of this stock worth today if the market rate of return on similar securities is 11.2 percent? A. $11.02 B. $10.77 C. $11.37 D. $10.26 E. $11.79"

c

"Delaware Trust has 450 shares of common stock outstanding at a market price per share of $27. Currently, the firm has excess cash of $400, total assets of $28,900, and net income of $1,320. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after this dividend is paid? A. $2.69 B. $2.86 C. $2.93 D. $3.07 E. $3.24"

c

"Distant Groves announced today that it will begin paying annual dividends next year. Dividends for the first three years will be $.15, $.20, and $.25 a share, respectively. After that, dividends are projected to increase by 4 percent per year. What is one share of this stock worth today at a required return of 8.5 percent? A. $5.17 B. $4.94 C. $5.03 D. $4.55 E. $4.86"

c

"Dixie South currently pays an annual dividend of $1.46 a share and plans on increasing that amount by 2.75 percent annually. Northern Culture currently pays an annual dividend of $1.42 a share and plans on increasing its dividend by 3.1 percent annually. Given this information, you know for certain that the stock of Northern Culture has a higher ______ than the stock of Dixie South. A. Market price. B. Dividend yield. C. Capital gains yield. D. Total return. E. Real return."

c

"Galloway, Inc. has an odd dividend policy. The company just paid a dividend of $6 per share and has announced that it will increase the dividend by $1 per share for each of the next 4 years, and then never pay another dividend. How much are you willing to pay per share today to buy this stock if you require a 10 percent return? A. $27.08 B. $24.15 C. $26.57 D. $32.60 E. $33.33"

c

"Global Tek is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 15 percent a year for the next four years and then decreasing the growth rate to 3.5 percent per year. The company just paid its annual dividend in the amount of $.20 per share. What is the current value of one share of this stock if the required rate of return is 15.5 percent? A. $1.82 B. $2.04 C. $2.49 D. $2.71 E. $3.05"

c

"HJ Corporation has excess cash and has opted to buy some of its outstanding shares. What is this process of buying called? A. Stock dividend B. Stock split C. Stock repurchase D. Reverse stock split E. Stock repeal"

c

"How much are you willing to pay for one share of LBM stock if the company just paid a $1.23 annual dividend, the dividends increase by 3.1 percent annually, and you require a return of 16 percent? A. $9.29 B. $9.33 C. $9.83 D. $10.21 E. $9.59"

c

"K's Fashions is growing quickly. Dividends are expected to increase by 15 percent annually for the next three years, with the growth rate falling off to a constant 5 percent thereafter. The required return is 16 percent and the company just paid a $3.80 annual dividend. What is the current share price? A. $28.96 B. $31.11 C. $46.55 D. $48.87 E. $52.20"

c

"KNJ Companies is preparing to pay dividends of $.52, $.60, and $.75 a share over the next three years, respectively. After that, the annual dividend will be $1.10 per share indefinitely. What is this stock worth to you per share if you require a return of 9.8 percent? A. $6.67 B. $8.21 C. $10.02 D. $11.47 E. $12.03"

c

"Ma's Fried Chicken has 15,000 shares of stock outstanding with a par value of $1 per share and a market value of $38 per share. The balance sheet shows $63,000 in the capital in excess of par account, $15,000 in the common stock account, and $137,000 in the retained earnings account. The firm just announced a 5 percent stock dividend. What will total owners' equity be after the dividend? A. $185,800 B. $199,000 C. $215,000 D. $206,800 E. $212,200"

c

"NASDAQ has: A. An electronic network that transmits orders directly to the trading floor. B. Both floor and commission brokers. C. Three separate markets. D. A single designated market maker for each listed stock. E. Level 3 data available online for easy access by all investors."

c

"NYSE designated market makers: A. Execute trades on behalf of their clients. B. Are guaranteed a profit on every stock purchased and resold. C. Act as dealers. D. Provide a one-sided market. E. Are also referred to as ""$2 brokers."

c

"National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm's stock is: A. Basically worthless as it offers no growth potential. B. Equal in value to the present value of $1 paid one year from today. C. Priced the same as a $1 perpetuity. D. Valued at an assumed growth rate of 1 percent. E. Worth $1 a share in the current market."

c

"Next year, Jensen's will pay an annual dividend of $2.75 per share. The company has been reducing the dividends by 10 percent annually. How much are you willing to pay today to purchase stock in this company if your required rate of return is 11.5 percent? A. $11.92 B. $17.87 C. $12.79 D. 18.33 E. $16.50"

c

"On July 9, you purchased 600 shares of Blue Water stock for $32 a share. On August 4, you sold 100 shares of this stock for $33 a share. You sold an additional 100 shares on August 14 at a price of $34.50 a share. The company declared a dividend of $.76 per share on August 3 to holders of record as of Monday, August 17. This dividend is payable on September 15. How much dividend income will you receive on September 15? A. $304 B. $418 C. $380 D. $360 E. $456"

c

"Roy's Welding common stock sells for $48.96 a share and pays an annual dividend that increases by 2.5 percent annually. The market rate of return on this stock is 14.6 percent. What is the amount of the last dividend paid? A. $4.80 B. $5.86 C. $5.78 D. $4.98 E. $5.64"

c

"S.L. Moffatt, Inc. has paid a quarterly dividend of $1.20 per share for the last 10 quarters. Which one of the following is most apt to cause the firm to reduce the amount of its next dividend payment? A. Decrease in the next quarter's revenue. B. Decrease in the next quarter's net income. C. Loss of a major customer which lowers the firm's outlook for the next few years. D. Major lump sum cash outflow next month to settle a class action product liability lawsuit on a product that is no longer produced. E. Decrease in the number of new projects under consideration as compared to last year."

c

"TJ's has a market value equal to its book value. Currently, the firm has excess cash of $389,000, other assets of $911,674, and equity of $886,200. The firm has 60,000 shares of stock outstanding and net income of $984,800. Management has decided to spend 20 percent of the firm's excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed? A. 57,937 shares B. 58,050 shares C. 54,733 shares D. 55,578 shares E. 51,584 shares"

c

"The Garden Shoppe has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 1.65 percent annually. The firm just paid an annual dividend of $1.84. What will the dividend be eight years from now? A. $1.88 B. $1.92 C. $2.10 D. $2.02 E. $2.15"

c

"The Olive Vase has 62,000 shares of stock outstanding with a par value of $1 per share and a market value of $17 a share. The company just announced a 3-for-5 reverse stock split. Currently, you own 600 shares of this stock. What will the total value of your shares be after the reverse stock split? A. $3,300 B. $6,120 C. $10,200 D. $4,080 E. $17,000"

c

"The board of directors of Wilson Sporting Equipment met this afternoon and passed a resolution to pay a cash dividend of $.42 a share next month. In relation to this dividend, today is referred to as which one of the following dates? A. Decision date B. Date-of-record C. Declaration date D. Payment date E. Ex-dividend date"

c

"The dividend market is in equilibrium when: A. All firms adopt a low dividend policy. B. Half of the firms adopt a low dividend policy and half adopt a high dividend policy. C. All clienteles are satisfied. D. Dividends remain constant and no special dividends are declared. E. The total amount of the annual dividends is equal to the net income for the year."

c

"The information content of a dividend increase generally signals that: A. The firm has a one-time surplus of cash. B. The firm has few, if any, net present value projects to pursue. C. Management believes earnings growth will be strong going forward. D. The firm has more cash than it needs due to a decline in future orders. E. Dividends thereafter will be lower."

c

"The last date on which you can purchase shares of stock and still receive the next dividend is the date that is _____ business day(s) prior to the date of record. A. 1 B. 2 C. 3 D. 4 E. 5"

c

"The market value balance sheet for Apple Pie Corp. reflects cash of $38,000, fixed assets of $221,000, and equity of $259,000. There are 8,000 shares of stock outstanding with a par value of $1 per share. The company has declared a dividend of $1.23 per share. The stock goes ex dividend tomorrow. Ignore any tax effects. What will be the price of the stock tomorrow morning? A. $32.38 B. $36.20 C. $31.15 D. $32.15 E. $31.38"

c

"The stream of customer orders coming in to the NYSE trading floor is called the: A. Paper trail. B. Trading volume. C. Order flow. D. Bid-ask spread. E. Commission trail."

c

"Val's Marina Supply has 5,500 shares of stock outstanding with a par value of $1 per share and a market value of $33 per share. The balance sheet shows $5,500 in the common stock account, $29,600 in the capital in excess of par account, and $56,400 in the retained earnings account. The firm just announced a 100 percent stock dividend. What is the value of the capital in excess of par account after the dividend? A. $24,100 B. $14,800 C. $29,600 D. $59,200 E. $205,600"

c

"Western Mountain Water has 11,000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $135,000. The balance sheet shows a capital in excess of par value account balance of $68,000 and retained earnings of $49,000. The company just announced a 2-for-1 stock split. What will be the capital in excess of par value account balance after the split? A. $45,333 B. $54,667 C. $68,000 D. $86,667 E. $102,000"

c

"What are the distributions of either cash or stock to shareholders by a corporation called? A. Coupon payments. B. Retained earnings. C. Dividends. D. Capital payments. E. Diluted profits."

c

"Which one of the following best describes NASDAQ? A. Dealer price at which they will buy is listed as the asked price. B. Market where the DMM's are located at posts. C. Computer network of securities dealers. D. Market with three physical trading floors. E. Largest U.S. stock market in terms of dollar trading volume."

c

"Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment? A. Ex-rights date B. Ex-dividend date C. Date of record D. Date of payment E. Declaration date"

c

"Which one of the following factors tends to increase cash dividends? A. Capital gains tax deferment. B. Terms contained in bond indentures. C. Corporate investors. D. Flotation costs. E. Homemade dividends."

c

"Which one of the following is computed by dividing next year's annual dividend by the current stock price? A. Yield to maturity. B. Total yield. C. Dividend yield. D. Capital gains yield. E. Growth rate."

c

"Which one of the following statements is correct? A. Firms prefer to cut dividend payments rather than borrow money to fund a short-term cash need. B. Share repurchases tend to increase agency costs. C. Maintaining a steady dividend is a key goal of most dividend-paying firms. D. Tax rates are the key factor in determining a firm's dividend policy. E. Stock prices tend to ignore expected changes in dividend payments."

c

"Which one of the following statements related to dividend policy is correct? A. The primary question related to dividend policy is whether or not a firm should ever pay a dividend. B. Both dividends and dividend policy are irrelevant. C. Dividend policy focuses on the timing of dividend payments. D. Homemade dividends increase the importance of a firm's dividend policy decisions. E. Whether or not a firm ever pays a dividend is irrelevant to equity valuation."

c

"Whistle Stop pays a constant annual $8 dividend on its stock. The company will maintain this dividend for the next eight years and will then cease paying dividends forever. What is the current price per share if the required return on this stock is 12.6 percent? A. $37.78 B. $42.48 C. $38.92 D. $36.67 E. $63.49"

c

"Who can access Level 3 of NASDAQ's information? A. Only NASDAQ regulators. B. Customers who pay an access fee. C. NASDAQ market makers. D. There is no Level 3. E. Anyone with internet access."

c

"You own 1,200 shares of stock in A-Z Tours. You will receive a dividend of $.65 in one year. In two years, A-Z will pay a liquidating dividend of $35 per share. The required return is 16 percent. If you only want $200 total in dividends in the first year, what will be your homemade dividend in the second year? A. $35,696 B. $40,764 C. $42,673 D. $61,402 E. $63,878"

c

"You own 1,600 shares of Dell Hardware. The company plans on issuing a dividend of $.58 a share at the end of this year and then issuing a final liquidating dividend of $5.30 a share at the end of next year. Your required rate of return on this security is 17 percent. Ignoring taxes, what is the value of one share of this stock to you today? A. $3.30 B. $3.43 C. $4.37 D. $4.92 E. $5.32"

c

"You want to be on the board of directors of Uptown Communications. Since you are the only shareholder who will vote for you, you will need to own more than half of the outstanding shares of stock if you are to be elected to the board. What is the type of voting called that requires this level of stock ownership to be successfully elected? A. Democratic. B. Cumulative. C. Straight. D. Deferred. E. Proxy."

c

101. A Treasury bond is quoted at a price of 106:23 with a 3.50 percent coupon. The bond pays interest semiannually. What is the current yield on one of these bonds? A. 3.06 percent B. 3.19 percent C. 3.28 percent D. 3.33 percent E. 3.38 percent Current price = 106 and 23/32nds percent of face = 1.0671875 ´ $1,000 = $1,067.1875 Current yield = (0.035 ´ $1,000)/$1,067.1875 = 3.28 percent

c

104. A bond that pays interest annually yielded 7.47 percent last year. The inflation rate for the same period was 6.10 percent. What was the actual real rate of return on this bond for last year? A. 1.19 percent B. 1.25 percent C. 1.29 percent D. 1.36 percent E. 1.41 percent

c

14. A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called which one of the following? A. dirty price B. redemption value C. call premium D. original-issue discount E. redemption discount Refer to section 7.2

c

19. Which one of the following is the price a dealer will pay to purchase a bond? A. call price B. asked price C. bid price D. bid-ask spread E. par value Refer to section 7.5

c

22. A bond is quoted at a price of $989. This price is referred to as which one of the following? A. call price B. face value C. clean price D. dirty price E. wholesale price Refer to section 7.5

c

27. The pure time value of money is known as the: A. liquidity effect. B. Fisher effect. C. term structure of interest rates. D. inflation factor. E. interest rate factor. Refer to section 7.7

c

3. A bond's coupon rate is equal to the annual interest divided by which one of the following? A. call price B. current price C. face value D. clean price E. dirty price Refer to section 7.1

c

36. All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity. A. a premium less than B. a premium equal to C. a discount less than D. a discount higher than E. par less than Refer to section 7.1

c

39. Which of the following relationships apply to a par value bond? I. coupon rate < yield-to-maturity II. current yield = yield-to-maturity III. market price = call price IV. market price = face value A. I and II only B. I and III only C. II and IV only D. I, II, and III only E. II, III, and IV only Refer to sections 7.1 and 7.2

c

4. The specified date on which the principal amount of a bond is payable is referred to as which one of the following? A. coupon date B. yield date C. maturity D. dirty date E. clean date Refer to section 7.1

c

63. The collar of a floating-rate bond refers to the minimum and maximum: A. call periods. B. maturity dates. C. market prices. D. coupon rates. E. yields to maturity. Refer to section 7.4

d

41. Green Roof Inns is preparing a bond offering with a 6 percent, semiannual coupon and a face value of $1,000. The bonds will be repaid in 10 years and will be sold at par. Given this, which one of the following statements is correct? A. The bonds will become discount bonds if the market rate of interest declines. B. The bonds will pay 10 interest payments of $60 each. C. The bonds will sell at a premium if the market rate is 5.5 percent. D. The bonds will initially sell for $1,030 each. E. The final payment will be in the amount of $1,060. Refer to section 7.1

c

43. Which of the following increase the price sensitivity of a bond to changes in interest rates? I. increase in time to maturity II. decrease in time to maturity III. increase in coupon rate IV. decrease in coupon rate A. II only B. I and III only C. I and IV only D. II and III only E. II and IV only Refer to section 7.1

c

47. You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change. Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur? A. short-term low coupon B. short-term high coupon C. long-term zero coupon D. long-term low coupon E. long-term high coupon Refer to section 7.1

c

48. A 6 percent, annual coupon bond is currently selling at a premium and matures in 7 years. The bond was originally issued 3 years ago at par. Which one of the following statements is accurate in respect to this bond today? A. The face value of the bond today is greater than it was when the bond was issued. B. The bond is worth less today than when it was issued. C. The yield-to-maturity is less than the coupon rate. D. The coupon rate is greater than the current yield. E. The yield-to-maturity equals the current yield. Refer to section 7.1

c

51. Last year, Lexington Homes issued $1 million in unsecured, non-callable debt. This debt pays an annual interest payment of $55 and matures 6 years from now. The face value is $1,000 and the market price is $1,020. Which one of these terms correctly describes a feature of this debt? A. semi-annual coupon B. discount bond C. note D. trust deed E. collateralized Refer to section 7.2

c

55. Which one of the following statements concerning bond ratings is correct? A. Investment grade bonds are rated BB or higher by Standard & Poor's. B. Bond ratings assess both interest rate risk and default risk. C. Split rated bonds are called crossover bonds. D. The highest rating issued by Moody's is AAA. E. A "fallen angel" is a term applied to all "junk" bonds. Refer to section 7.3

c

57. Bonds issued by the U.S. government: A. are considered to be free of interest rate risk. B. generally have higher coupons than those issued by an individual state. C. are considered to be free of default risk. D. pay interest that is exempt from federal income taxes. E. are called "munis". Refer to section 7.4

c

59. Municipal bonds: A. are totally risk-free. B. generally have higher coupon rates than corporate bonds. C. pay interest that is federally tax-free. D. are rarely callable. E. are free of default-risk. Refer to section 7.4

c

6. The current yield is defined as the annual interest on a bond divided by which one of the following? A. coupon B. face value C. market price D. call price E. dirty price Refer to section 7.1

c

64. Last year, you purchased a "TIPS" at par. Since that time, both market interest rates and the inflation rate have increased by 0.25 percent. Your bond has most likely done which one of the following since last year? A. decreased in value due to the change in inflation rates B. experienced an increase in its bond rating C. maintained a fixed real rate of return D. increased in value in response to the change in market rates E. increased in value due to a decrease in time to maturity Refer to section 7.4

c

69. Phil has researched TLM Technologies and believes the firm is poised to vastly increase in value. He wants to invest in this company. Phil has decided to purchase TLM Technologies bonds so that he can have a steady stream of interest income. However, he still wishes that he could share in the firm's success along with TLM's shareholders. Which one of the following bond features will help Phil fulfill his wish? A. put provision B. positive covenant C. warrant D. crossover rating E. call provision Refer to section 7.4

c

72. A 6-year, $1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. Assume today is October 1. What will the difference, if any, be between this bond's clean and dirty prices today? A. no difference B. one month's interest C. two month's interest D. four month's interest E. five month's interest Refer to section 7.5

c

78. Which of the following statements is correct concerning the term structure of interest rates? I. Expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates. II. The term structure of interest rates includes both an inflation premium and an interest rate risk premium. III. The real rate of return has minimal, if any, affect on the slope of the term structure of interest rates. IV. The term structure of interest rates and the time to maturity are always directly related. A. I and II only B. II and IV only C. I, II, and III only D. II, III, and IV only E. I, II, and IV only Refer to section 7.7

c

88. You are purchasing a 25-year, zero-coupon bond. The yield to maturity is 8.68 percent and the face value is $1,000. What is the current market price? A. $106.67 B. $108.18 C. $119.52 D. $121.50 E. $128.47

c

9. A bond that is payable to whomever has physical possession of the bond is said to be in: A. new-issue condition. B. registered form. C. bearer form. D. debenture status. E. collateral status. Refer to section 7.2

c

90. The zero coupon bonds of D&L Movers have a market price of $319.24, a face value of $1,000, and a yield to maturity of 9.17 percent. How many years is it until these bonds mature? A. 11.92 years B. 12.28 years C. 12.73 years D. 13.01 years E. 13.47 years

c

93. Blackwell bonds have a face value of $1,000 and are currently quoted at 98.4. The bonds have a 5 percent coupon rate. What is the current yield on these bonds? A. 4.67 percent B. 4.78 percent C. 5.08 percent D. 5.33 percent E. 5.54 percent

c

94. The outstanding bonds of The River Front Ferry carry a 6.5 percent coupon. The bonds have a face value of $1,000 and are currently quoted at 101.6. What is the current yield on these bonds? A. 1.60 percent B. 2.37 percent C. 6.40 percent D. 6.49 percent E. 6.88 percent

c

"A decrease in which of the following will increase the current value of a stock according to the dividend growth model? A. Dividend amount. B. Number of future dividends, provided the number is less than infinite. C. Dividend growth rate. D. Discount rate. E. Both the discount rate and the dividend growth rate."

d

"A one-for-four reverse stock split will: A. Increase the par value by 25 percent. B. Increase the number of shares outstanding by 400 percent. C. Increase the market value but not affect the par value per share. D. Increase a $1 par value to $4. E. Increase a $1 par value to $5."

d

"A preferred stock pays a $4.50 annual dividend. What is the maximum price you are willing to pay for one share of this stock today if your required return is 8.5 percent? A. $41.47 B. $35.48 C. $38.25 D. $52.94 E. $57.50"

d

"A reverse stock split is defined as: A. An increase in the number of shares outstanding that does not affect owners' equity. B. A firm buying back existing shares of its stock on the open market. C. A firm selling new shares of stock on the open market. D. A decrease in the number of shares outstanding that does not affect total owners' equity. E. A decrease in both the number of shares outstanding and the price per share."

d

"A small stock dividend: A. Increases the common stock account by the market price of each share issued. B. Reduces cash by the total market value of the issued shares. C. Only affects the par value not the equity account balances. D. Reduces retained earnings by the market price of each share issued. E. Does not affect the capital in excess of par value account."

d

"A stock pays a constant annual dividend and sells for $56.07 a share. If the market rate of return on this stock is 12.2 percent, what is the amount of the next annual dividend? A. $5.67 B. $5.94 C. $6.21 D. $6.84 E. $7.30"

d

"Alta Gems stock is currently trading at $56 a share. The firm believes its primary clientele can afford to spend between $1,500 and $2,000 to purchase a round lot of 100 shares. The firm should consider a: A. Reverse stock split. B. Liquidating dividend. C. Stock dividend. D. Stock split. E. Special dividend."

d

"Automatic dividend reinvestment plans: A. Require that participating stockholders reinvest all of the dividends to which they are entitled. B. Grant all participants a discount on share purchases. C. Increase the relevance of corporate dividend policies. D. Help shareholders create their own homemade dividend policies. E. Are no longer available in the u.s."

d

"Bailey's decided on Friday, March 7 to pay a dividend of $.28 a share on Monday, April 7. The ex-dividend date is Tuesday, March 18. What is the date of record? A. Friday, March 7 B. Monday, March 17 C. Friday, March 14 D. Thursday, March 20 E. Friday, March 21"

d

"City Center Pharmacy has 11,500 shares of stock outstanding with a par value of $1 per share and a market value of $12 a share. The company just announced a 3-for-7 reverse stock split. What will the market value per share be after the reverse stock split? A. $5.14 B. $12.00 C. $23.33 D. $28.00 E. $33.14"

d

"Dividend payments are distributed on which one of the following dates? A. Ex-rights date B. Ex-dividend date C. Date of record D. Date of payment E. Declaration date"

d

"Farmco just paid a dividend of $.20 per share. The dividends are expected to grow at 20 percent annually for the next 7 years and then level off to an annual growth rate of 3 percent indefinitely. What is the price of this stock today given a required return of 15 percent? A. $7.54 B. $6.90 C. $4.47 D. $3.98 E. $8.19"

d

"Future Motors is expected to pay a $3.30 a share annual dividend next year. Dividends are expected to increase by 2.75 percent annually. What is one share of this stock worth to you today if your required rate of return is 15 percent? A. $25.06 B. $26.30 C. $24.56 D. $26.94 E. $27.59"

d

"Gee-Gee's is going to pay an annual dividend of $2.05 a share on its common stock next year. This year, the company paid a dividend of $2 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth five years from now if the applicable discount rate is 10.9 percent? A. $26.94 B. $28.30 C. $26.28 D. $27.61 E. $27.00"

d

"Glendale Paving currently has 212,000 shares of stock outstanding that sell for $44 per share. Assume no market imperfections or tax effects exist. What will be the new share price if the firm declares a stock dividend of 25 percent? A. $55.00 B. $32.00 C. $33.75 D. $35.20 E. $40.00"

d

"J&J Foods wants to issue some 6.5 percent preferred stock that has a stated liquidating value of $100 a share. The company has determined that stocks with similar characteristics provide a return of 9.5 percent. What should the offer price be? A. $77.26 B. $71.38 C. $64.20 D. $68.42 E. $62.60"

d

"Jen owns 30 shares of stock in Delta Fashions and wants to win a seat on the board of directors. The firm has a total of 100 shares of stock outstanding. Each share receives one vote. Presently, the company is voting to elect three new directors. Which one of the following statements must be true given this information? A. Regardless of the voting procedure, Jen does not own enough shares to gain a seat on the board. B. If straight voting applies, Jen is assured a seat on the board. C. If straight voting applies, Jen can control all of the open seats. D. If cumulative voting applies, Jen is assured one seat on the board. E. If cumulative voting applies, Jen can control all of the open seats."

d

"Josh's, Inc. has 5,000 shares of stock outstanding with a par value of $1 per share and a market value of $27 a share. The balance sheet shows $103,000 in the capital in excess of par account, $5,000 in the common stock account, and $164,800 in the retained earnings account. The firm just announced a stock dividend of 10 percent. What is the value of the capital in excess of par account after the dividend? A. $103,000 B. $102,000 C. $112,200 D. $116,000 E. $104,400"

d

"Supernormal growth is a growth rate that: A. Is both positive and follows a year or more of negative growth. B. Exceeds a firm's previous year's rate of growth. C. Is generally constant for an infinite period of time. D. Is unsustainable over the long term. E. Applies to a single, abnormal year."

d

"The Blue Marlin is owned by a group of five shareholders who all vote independently and who all want personal control over the firm. What is the minimum percentage of the outstanding shares one of these shareholders must own if he or she is to gain personal control over this firm given that the firm uses straight voting? A. 17 percent B. 20 percent plus one vote C. 25 percent plus one vote D. 50 percent plus one vote E. 51 percent"

d

"The Grist Mill just paid a dividend of $1.46 per share on its stock. The dividends are expected to grow at a constant rate of 3.5 percent per year, indefinitely. What will the price of this stock be in 5 years if investors require an annual return of 15 percent? A. $15.08 B. $15.24 C. $15.83 D. $15.61 E. $15.33"

d

"The Peace River Corporation has 86,000 shares of stock outstanding at a market price of $39 a share. The company has just announced a 4-for-3 stock split. How many shares of stock will be outstanding after the split? A. 72,667 shares B. 54,333 shares C. 107,333 shares D. 114,667 shares E. 64,500 shares"

d

"The Uptowner will pay an annual dividend of $1.98 a share next year with future dividends increasing by 2.8 percent annually. What is the market rate of return if the stock is currently selling for $49.10 a share? A. 6.55 percent B. 7.13 percent C. 7.46 percent D. 6.83 percent E. 8.29 percent"

d

"The common stock of Gillen Entertainment is selling for $52 a share. The firm has a book value of $357,400 and a market value of $886,000. How many shares of stock will be outstanding if the firm does a 5-for-2 stock split? A. 6,815 shares B. 2,749 shares C. 17,183 shares D. 42,596 shares E. 32,211 shares"

d

"The counter area on the floor of the NYSE where a designated market maker operates is called a: A. Pit. B. Hot spot. C. Seat. D. Post. E. Platform."

d

"The dividend growth model: A. Only values stocks at Time 0. B. Cannot be used to value constant dividend stocks. C. Can be used to value both dividend-paying and non-dividend-paying stocks. D. Requires the growth rate to be less than the required return. E. Assumes dividends increase at a decreasing rate."

d

"The next dividend payment by HG Enterprises will be $2.35 per share. The dividends are anticipated to maintain a 2.5 percent growth rate forever. The stock currently sells for $54.60 per share. What is the dividend yield? A. 4.20 percent B. 4.30 percent C. 4.81 percent D. 4.50 percent E. 4.41 percent"

d

"The secondary market is best defined by which one of the following? A. Market in which subordinated shares are issued and resold. B. Market conducted solely by brokers. C. Market dominated by dealers. D. Market where outstanding shares of stock are resold. E. Market where warrants are offered and sold."

d

"The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will: A. Pay an increasing dividend for a period of time and then cease paying dividends altogether. B. Increase the dividend amount every other year. C. Pay a constant dividend for the first two quarters of each year and then increase the dividend the last two quarters of each year. D. Grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely. E. Pay increasing dividends for a fixed period of time, cease paying dividends for a period of time, and then commence paying increasing dividends for an indefinite period of time."

d

"The typical range for the price-sales ratio is ___ but younger, faster-growing firms may have ratios that are much _____. A. 1.8 - 2.5 lower B. 2.0 - 3.5 lower C. .5 - 1.5 higher D. .8 - 2.0 higher E. 1.8 - 3.0 higher"

d

"Tucker's National Distributing has a current market value of equity of $10,665. Currently, the firm has excess cash of $640, total assets of $22,400, net income of $3,210, and 500 shares of stock outstanding. Tucker's is going to use all of its excess cash to repurchase shares of stock. What will the stock price per share be after the stock repurchase is completed? A. $20.87 B. $20.94 C. $21.06 D. $21.33 E. $21.42"

d

"Which one of following is the rate at which a stock's price is expected to appreciate? A. Current yield. B. Total return C. Dividend yield. D. Capital gains yield. E. Coupon rate."

d

"Which one of the following represents the capital gains yield as used in the dividend growth model? A. D1 B. D1 / P0 C. P0 D. g E. g / P0"

d

"Which one of the following rights is never directly granted to all shareholders of a publicly held corporation? A. Electing the board of directors. B. Receiving a distribution of company profits. C. Voting either for or against a proposed merger or acquisition. D. Determining the amount of the dividend to be paid per share. E. Having first chance to purchase any new equity shares that may be offered."

d

"Which one of the following statements appears to be supported by the current dividend policies of U.S. industrial firms? A. Firms tend to increase the dividend amount per share, even when it's unclear if the increase can be maintained. B. Investors no longer react to changes, either up or down, in dividends. C. Newer, high-growth firms tend to pay larger dividends than mature firms. D. Dividends are still viewed by shareholders as a signal of a firm's future outlook. E. Managers are no longer hesitant to lower dividend payments."

d

"Which one of the following statements is correct concerning the two-stage dividend growth model? A. g1 cannot be negative. B. Pt = Dt/ R. C. g1 must be greater than g2. D. g1 can be greater than R. E. R must be less than g1 but greater than g2."

d

"Which one of the following statements is correct? A. A reduction in personal tax rates tends to lead to lower dividends. B. Dividends tend to fluctuate significantly from quarter to quarter. C. Earnings growth tends to lag dividend growth. D. Dividend payments are highly concentrated in a relatively small set of large firms. E. Non-dividend-paying firms are generally more apt to commence paying regular dividends than to implement a stock repurchase program."

d

"Which one of the following statements related to stock repurchases is correct? A. An open market stock repurchase increases the total wealth of a shareholder if you ignore taxes, costs, and market imperfections. B. Targeted repurchases must be offered to all shareholders but can be done in steps such that only a portion of the shareholders have the option to sell at any one point in time. C. When a firm wishes to repurchase shares in the open market, it will do so in a special trading session that is set up by the SEC. D. A firm may spend more cash over the course of a year on stock repurchases than it does on cash dividends. E. Tender offer prices must be set equal to the opening market price on the day the tender offer is announced."

d

"Which one of the following transactions occurs in the primary market? A. Purchase of 500 shares of GE stock from a current shareholder. B. Gift of 100 shares of stock to a charitable organization. C. Gift of 200 shares of stock by a mother to her daughter. D. A purchase of newly issued stock from ATampT. E. IBM's purchase of GE stock from a dealer.

d

"You own 1,000 shares of stock in Avondale Corporation. You will receive a dividend of $1.04 per share in one year. In two years, Avondale will pay a liquidating dividend of $37.50 per share. The required return on Avondale stock is 15.8 percent. What will your dividend income be this year if you use homemade dividends to create two equal annual dividend payments? A. 19,270 B. $16,712 C. $18,667 D. $17,935 E. $20,400"

d

"You own one share of a cumulative preferred stock that pays quarterly dividends. The firm has recently suffered some financial setbacks and has failed to pay the last two dividends. However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter. As a preferred shareholder, you should expect to receive the equivalent of ____ quarter(s) of dividends when the next dividend is paid. A. 0 B. 1 C. 2 D. 3 E. Either 1, 2, or 3"

d

"Yummy Bakery just paid an annual dividend of $2.20 a share and is expected to increase that amount by 2.2 percent per year. If you are planning to buy 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 14 percent at the time of your purchase? A. $19.89 B. $18.16 C. $18.83 D. $19.47 E. $20.20"

d

102. A Treasury bond is quoted as 99:11 asked and 99:09 bid. What is the bid-ask spread in dollars on a $5,000 face value bond? A. $0.03 B. $0.63 C. $1.00 D. $3.13 E. $6.25 Bid-ask spread = 99:11 - 99:09 = 2/32 of 1 percent of $5,000 = $3.13

d

105. Getty Markets has bonds outstanding that pay a 5 percent semiannual coupon, have a 5.28 percent yield to maturity, and a face value of $1,000. The current rate of inflation is 4.1 percent. What is the real rate of return on these bonds? A. 0.86 percent B. 0.90 percent C. 1.04 percent D. 1.13 percent E. 1.19 percent

d

11. Which of the following defines a note? I. secured II. unsecured III. maturity less than 10 years IV. maturity in excess of 10 years A. III only B. I and III only C. I and IV only D. II and III only E. II and IV only

d

20. You want to buy a bond from a dealer. Which one of the following prices will you pay? A. call price B. auction price C. bid price D. asked price E. bid-ask spread Refer to section 7.5

d

23. Pete paid $1,032 as his total cost of purchasing a bond. This price is referred to as the: A. quoted price. B. spread price. C. clean price. D. dirty price. E. call price. Refer to section 7.5

d

26. The Fisher effect is defined as the relationship between which of the following variables? A. default risk premium, inflation risk premium, and real rates B. nominal rates, real rates, and interest rate risk premium C. interest rate risk premium, real rates, and default risk premium D. real rates, inflation rates, and nominal rates E. real rates, interest rate risk premium, and nominal rates Refer to section 7.6

d

28. Which one of the following premiums is compensation for expected future inflation? A. default risk B. taxability C. liquidity D. inflation E. interest rate risk Refer to section 7.7

d

32. The taxability risk premium compensates bond holders for which one of the following? A. yield decreases in response to market changes B. lack of coupon payments C. possibility of default D. a bond's unfavorable tax status E. decrease in a municipality's credit rating Refer to section 7.7

d

37. The Walthers Company has a semi-annual coupon bond outstanding. An increase in the market rate of interest will have which one of the following effects on this bond? A. increase the coupon rate B. decrease the coupon rate C. increase the market price D. decrease the market price E. increase the time period Refer to section 7.1

d

40. Which one of the following relationships is stated correctly? A. The coupon rate exceeds the current yield when a bond sells at a discount. B. The call price must equal the par value. C. An increase in market rates increases the market price of a bond. D. Decreasing the time to maturity increases the price of a discount bond, all else constant. E. Increasing the coupon rate decreases the current yield, all else constant. Refer to sections 7.1 and 7.2

d

42. A newly issued bond has a 7 percent coupon with semiannual interest payments. The bonds are currently priced at par value. The effective annual rate provided by these bonds must be: A. 3.5 percent. B. greater than 3.5 percent but less than 7 percent. C. 7 percent. D. greater than 7 percent. E. Answer cannot be determined from the information provided. Refer to section 7.1

d

5. Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston Industries. The 11.6 percent is referred to as which one of the following? A. coupon rate B. face rate C. call rate D. yield to maturity E. interest rate Refer to section 7.1

d

50. Texas Foods has a 6 percent bond issue outstanding that pays $30 in interest every March and September. The bonds are investment grade and sell at par. The bonds are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal to the comparable Treasury rate plus 0.50 percent. Which of the following correctly describe the features of this bond? I. bond rating of B II. "make whole" call price III. $1,000 face value IV. offer price of $1,000 A. I and III only B. III and IV only C. I, III, and IV only D. II, III, and IV only E. I, II, III, and IV Refer to section 7.2

d

58. Treasury bonds are: A. issued by any governmental agency in the U.S. B. issued only on the first day of each fiscal year by the U.S. Department of Treasury. C. bonds that offer the best tax benefits of any bonds currently available. D. generally issued as semi-annual coupon bonds. E. totally risk-free. Refer to section 7.4

d

61. A zero coupon bond: A. is sold at a large premium. B. pays interest that is tax deductible to the issuer when paid. C. can only be issued by the U.S. Treasury. D. has more interest rate risk than a comparable coupon bond. E. provides no taxable income to the bondholder until the bond matures. Refer to section 7.4

d

74. Which one of the following rates represents the change, if any, in your purchasing power as a result of owning a bond? A. risk-free rate B. realized rate C. nominal rate D. real rate E. current rate Refer to section 7.6

d

76. The Fisher Effect primarily emphasizes the effects of _____ on an investor's rate of return. A. default B. market C. interest rate D. inflation E. maturity Refer to section 7.6

d

77. You are trying to compare the present values of two separate streams of cash flows which have equivalent risks. One stream is expressed in nominal values and the other stream is expressed in real values. You decide to discount the nominal cash flows using a nominal annual rate of 8 percent. What rate should you use to discount the real cash flows? A. 8 percent B. EAR of 8 percent compounded monthly C. comparable risk-free rate D. comparable real rate E. You cannot compare the present values of these two streams of cash flows. Refer to section 7.6

d

80. The bonds issued by Stainless Tubs bear a 6 percent coupon, payable semiannually. The bonds mature in 11 years and have a $1,000 face value. Currently, the bonds sell for $989. What is the yield to maturity? A. 5.87 percent B. 5.92 percent C. 6.08 percent D. 6.14 percent E. 6.20 percent This cannot be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that your answer is correct.

d

84. Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 10.5 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 6.69 percent? A. $999.80 B. $999.85 C. $1,003.42 D. $1,004.47 E. $1,007.52

d

92. The Corner Grocer has a 7-year, 6 percent annual coupon bond outstanding with a $1,000 par value. The bond has a yield to maturity of 5.5 percent. Which one of the following statements is correct if the market yield suddenly increases to 6.5 percent? A. The bond price will increase by $57.14. B. The bond price will increase by 5.29 percent. C. The bond price will decrease by $53.62. D. The bond price will decrease by 5.43 percent. E. The bond price will decrease by 5.36 percent.

d

98. A Treasury bond is quoted at a price of 105:15. What is the market price of this bond if the face value is $5,000? A. $5,005.15 B. $5,105.15 C. $5,257.50 D. $5,273.44 E. $5,515.00 Price = 105:15 = 105 and 15/32 percent of face = 1.0546875 ´ $5,000 = $5,273.44

d

99. A Treasury bond is quoted at a price of 101:14 with a current yield of 7.236 percent. What is the coupon rate? A. 7.20 percent B. 7.28 percent C. 7.30 percent D. 7.34 percent E. 7.39 percent Price = 101 and 14/32 percent of face = 1.014375 ´ $1,000 = $1,014.375 Annual interest = 0.07236 ´ $1,014.375 = $73.40 Coupon rate = $73.40/$1,000 = 7.34 percent

d

"A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a(n): A. Floor trader. B. Dealer. C. Specialist. D. Executor. E. Commission broker."

e

"A stock repurchase program: A. Requires all shareholders to sell a fraction of their shares. B. Is preferred over a high-dividend program only by tax-exempt shareholders. C. Decreases both the number of shares outstanding and the market price per share. D. Has no effect on a firm's financial statements. E. Is essentially the same as a cash dividend program provided there are no taxes or other costs."

e

"A stock split: A. Increases the total value of the common stock account. B. Decreases the value of the retained earnings account. C. Increases the par value per share. D. Increases the value of the capital in excess of par account. E. Decreases the market value per share."

e

"AC Electric just paid a $2.10 per share annual dividend. The firm pledges to increase its dividend by 2.4 percent for the next five years and then maintain a constant 2 percent rate of dividend growth. If the required return is 15 percent, what is the current value of one share of this stock? A. $25.07 B. $23.09 C. $22.22 D. $18.47 E. $16.74"

e

"Al owns 400 shares of M&M Enterprises and earns 13.2 percent on his investments. M&M recently stated that it will pay dividends per share of $.48 this year and $.55 next year. Al does not want any dividend income this year but does want as much dividend income as possible next year. Ignoring taxes, what will Al's total homemade dividend be next year? A. $412.00 B. $466.38 C. $430.50 D. $441.80 E. $437.34"

e

"An agent who maintains an inventory from which he or she buys and sells securities is called a: A. Broker. B. Trader. C. Capitalist. D. Principal. E. Dealer."

e

"Built Rite Corp. is evaluating an extra dividend versus a share repurchase. In either case, $5,500 would be spent. Current earnings are $1 per share, and the stock currently sells for $27 per share. There are 2,500 shares outstanding. Ignore taxes and other imperfections. You own one share of stock in this company. If the company issues the dividend, your total investment will be worth ____ as compared to ____ if the company opts for a share repurchase. A. $26, $27 B. $27, $26 C. $24.80, $27 D. $23, $33 E. $27, $27"

e

"Chemical Mines has 5,000 shareholders and is preparing to elect two new board members. You do not own enough shares to personally control the elections but are determined to oust the current leadership. Likewise, no other single shareholder owns sufficient shares to personally control the outcome of the election. Which one of the following is the most likely outcome of this situation given that some shareholders are happy with the existing management? A. Negotiated settlement where each side is granted control over one of the open seats. B. Protracted legal battle over control of the board of directors. C. Arbitrated settlement where the arbitrator determines who will be elected to the board. D. Control of the board decided without your influence. E. Proxy fight for control of the board."

e

"Della's Pools has 24,000 shares of stock outstanding with a par value of $1 per share and a market price of $26 a share. The firm just announced a 5-for-3 stock split. How many shares of stock will be outstanding after the split? A. 9,600 shares B. 14,400 shares C. 12,000 shares D. 32,000 shares E. 40,000 shares"

e

"Emst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets? A. Private. B. Auction. C. Tertiary. D. Secondary. E. Primary."

e

"Home Products common stock sells for $18.31 a share and has a market rate of return of 12.8 percent. The company just paid an annual dividend of $1.42 per share. What is the dividend growth rate? A. 5.27 percent B. 4.45 percent C. 5.01 percent D. 4.29 percent E. 4.68 percent"

e

"Home Services common stock offers an expected total return of 14.56 percent. The last annual dividend was $2.27 a share. Dividends increase at a constant 2.1 percent per year. What is the dividend yield? A. 16.66 percent B. 16.48 percent C. 13.35 percent D. 14.20 percent E. 12.46 percent"

e

"Preferred stock may have all of the following characteristics in common with bonds with the exception of: A. The lack of voting rights. B. A possible conversion option into common stock. C. Annuity payments. D. A fixed liquidation value. E. Tax-deductible payments."

e

"Purvis Lawn Products has 18,000 shares of stock outstanding at a market price of $5.50 a share. What will the market price per share be if the company does a 1-for-4 reverse stock split? A. $1.38 B. $5.50 C. $11.00 D. $16.50 E. $22.00"

e

"Sew 'N More just paid an annual dividend of $1.42 a share. The firm plans to pay annual dividends of $1.45, $1.50, and $1.53 over the next 3 years, respectively. After that time, the dividends will be held constant at $1.60 per share. What is this stock worth today at a discount rate of 9 percent? A. $17.08 B. $16.30 C. $16.67 D. $16.79 E. $17.50"

e

"Southern Markets recently paid a $2.80 annual dividend on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $26.91 a share. What is the market rate of return? A. 13.88 percent B. 14.07 percent C. 14.21 percent D. 14.37 percent E. 14.60 percent"

e

"The Mining Co. has 20,000 shares of stock outstanding. The current market value of the firm is $328,000. The company has retained earnings of $27,000, capital in excess of par value of $160,000, and a common stock account value of $40,000. The company is planning a reverse stock split of 2-for-5. What will the par value per share be after the split? A. $.15 B. $.20 C. $1.00 D. $2.50 E. $5.00"

e

"The Tanning Bed has 10,000 shares of stock outstanding with a par value of $1 per share and a market value of $8 per share. The balance sheet shows $10,000 in the common stock account, $60,000 in the capital in excess of par account, and $94,300 in the retained earnings account. The firm just announced a 100 percent stock dividend. What will be the value of the common stock account after the dividend? A. $5,000 B. $10,000 C. $11,000 D. $15,000 E. $20,000"

e

"The common stock of High Energy is selling for $62 a share. Currently, the firm has a total market value of $812,000 and a book value of $387,600. How many shares of stock will be outstanding if the firm does a 3-for-2 stock split? A. 8,731 shares B. 9,377 shares C. 4,168 shares D. 17,727 shares E. 19,645 shares"

e

"The fact that flotation costs can be significant is an argument for: A. Issuing larger regular dividends than the industry norm. B. Maintaining a constant dividend policy even if the firm frequently has to issue new shares. C. Periodic extra dividend payments. D. Maintaining a constant dividend policy even when profits decline significantly. E. Maintaining a low dividend policy and rarely issuing extra dividends."

e

"Webster United is paying a dividend of $1.32 per share today. There are 350,000 shares outstanding with a market price of $22.40 per share prior to the dividend payment. Ignore taxes. Before the dividend, the company had earnings per share of $1.68. As a result of this dividend, the: A. Retained earnings will decrease by $350,000. B. Retained earnings will increase by $462,000. C. Total firm value will not change. D. Earnings per share will increase to $3. E. Price-earnings ratio will be 12.55."

e

"What is the information content effect? A. Any type of new information that causes a firm to cease paying dividends. B. Any news announcement that was anticipated and thus produces no reaction from investors. C. The primary contributing data that helps directors determine the amount of a particular dividend payment. D. Any type of reaction from a shareholder in response to a news announcement related to the stock issuer. E. The financial market's reaction to a change in the amount of a firm's dividend."

e

"Which one of the following is a direct result of a 2-for-1 stock split? A. A 100 percent increase in the number of shareholders. B. A 100 percent increase in the common stock account balance. C. A 100 percent decrease in the stock price. D. A 50 percent increase in the number of shares outstanding. E. A 50 percent decrease in the par value per share."

e

"Which one of the following is a result of a small stock dividend? A. Increase in retained earnings. B. Decrease in total owner's equity. C. Decrease in cash. D. Decrease in capital in excess of par value. E. Increase in common stock."

e

"Which one of the following is a result of a stock repurchase? A. Increase in the number of shares outstanding. B. Increase in the market price per share. C. Increase in the total equity of the repurchasing firm. D. Decrease in EPS. E. PE ratio equal to that resulting from a comparable cash dividend."

e

"Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities? A. Senior bond. B. Debenture. C. Warrant. D. Common stock. E. Preferred stock."

e

"Which one of the following refers to the ability of shareholders to undo a firm's dividend policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock? A. Perfect foresight model B. Personalization C. Recapitalization D. Offsetting leverage E. Homemade dividend"

e

"Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model? A. No dividends for five years, then increasing dividends forever B. $1 per share annual dividend for two years, then $1.25 annual dividends forever C. Decreasing dividends for six years followed by one final liquidating dividend payment D. Dividends payments that increase by 2, 3, and 4 percent respectively for three years followed by a constant dividend thereafter E. Dividend payments that increase by 10 percent per year for five years followed by dividends that increase by 3 percent annually thereafter"

e

"Which one of the following statements applies to NASDAQ? A. Composed of four separate markets. B. Exchange floor located in Chicago. C. Provides two levels of information access. D. DMM system. E. Multiple market maker system."

e

"Which one of the following statements is correct? A. Stocks can only be assigned one dividend growth rate. B. Preferred stocks generally have constant growth rates. C. Dividend growth rates must be either zero or positive. D. All stocks can be valued using the dividend discount models. E. Stocks can have negative growth rates."

e

"Which one of the following statements related to corporate dividends is correct? A. Dividends are nontaxable income to shareholders. B. Dividends reduce the taxable income of the corporation. C. The chief executive officer of a corporation is responsible for declaring dividends. D. The chief financial officer of a corporation determines the amount of dividend to be paid. E. Corporate shareholders may receive a tax break on a portion of their dividend income."

e

"Which one of the following statements related to stock repurchases is correct? A. U.S. industrial firms have increased their stock repurchases every year for each of the past 20 years. B. The tax law change in May 2003 led to a huge increase in stock repurchases and a reduction in dividend payments. C. A tender offer indicates that a firm is willing and able to purchase however many shares the current shareholders wish to sell. D. All stock repurchases must be identified as such to the selling party. E. Stock repurchases can be a relatively tax-efficient method of distributing cash to shareholders."

e

"Which one of the following tends to decrease the ability of a shareholder to create his or her own homemade dividend policy? A. Low taxes on capital gains. B. Large holdings of shares. C. Dividend reinvestment plans. D. Low-cost equity purchases. E. High transaction fees."

e

"Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings? A. Dual class. B. Cumulative. C. Non-cumulative. D. Preferred. E. Common."

e

"Which one of these statements related to preferred stock is correct? A. Preferred shareholders normally receive one vote per share of stock owned. B. Preferred shareholders determine the outcome of any election that involves a proxy fight. C. Preferred shareholders are considered to be the residual owners of a corporation. D. Preferred stock normally has a stated liquidating value of $1,000 per share. E. Cumulative preferred shares are more valuable than comparable noncumulative shares."

e

"You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called? A. Alternative voting. B. Cumulative voting. C. Straight voting. D. Indenture voting. E. Voting by proxy."

e

"Your local toy store just announced that it will pay a $4 dividend next year, $3 the following year, and then a final liquidating dividend of $46 a share in year 3. At a discount rate of 14 percent, what should one share sell for today? A. $46.21 B. $47.48 C. $45.64 D. $39.09 E. $36.87"

e

10. The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms? A. note B. discounted C. zero-coupon D. callable E. debenture

e

106. The outstanding bonds of Winter Time Products provide a real rate of return of 3.03 percent. The current rate of inflation is 4.68 percent. What is the actual nominal rate of return on these bonds? A. 7.58 percent B. 7.33 percent C. 7.71 percent D. 7.76 percent E. 7.85 percent (1 + 0.0303) ´ (1 + 0.0468) - 1 = 7.85 percent

e

109. Northern Warehouses wants to raise $11.4 million to expand its business. To accomplish this, it plans to sell 40-year, $1,000 face value, zero-coupon bonds. The bonds will be priced to yield 8.75 percent. What is the minimum number of bonds it must sell to raise the $11.4 million it needs? A. 210,411 B. 239,800 C. 254,907 D. 326,029 E. 350,448

e

16. A call-protected bond is a bond that: A. is guaranteed to be called. B. can never be called. C. is currently being called. D. is callable at any time. E. cannot be called during a certain period of time. Refer to section 7.2

e

17. The items included in an indenture that limit certain actions of the issuer in order to protect bondholder's interests are referred to as the: A. trustee relationships. B. bylaws. C. legal bounds. D. "plain vanilla" conditions. E. protective covenants. Refer to section 7.2

e

18. A bond that has only one payment, which occurs at maturity, defines which one of the following? A. debenture B. callable C. floating-rate D. junk E. zero coupon Refer to section 7.4

e

21. The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the: A. equilibrium. B. premium. C. discount. D. call price. E. spread. Refer to section 7.5

e

25. Interest rates that include an inflation premium are referred to as: A. annual percentage rates. B. stripped rates. C. effective annual rates. D. real rates. E. nominal rates. Refer to section 7.6

e

30. A Treasury yield curve plots Treasury interest rates relative to which one of the following? A. market rates B. comparable corporate bond rates C. the risk-free rate D. inflation E. maturity Refer to section 7.7

e

35. A bond has a market price that exceeds its face value. Which of the following features currently apply to this bond? I. discounted price II. premium price III. yield-to-maturity that exceeds the coupon rate IV. yield-to-maturity that is less than the coupon rate A. III only B. I and III only C. I and IV only D. II and III only E. II and IV only Refer to section 7.1

e

38. Which of the following are characteristics of a premium bond? I. coupon rate < yield-to-maturity II. coupon rate > yield-to-maturity III. coupon rate < current yield IV. coupon rate > current yield A. I only B. I and III only C. I and IV only D. II and III only E. II and IV only Refer to section 7.1

e

46. You own a bond that has a 6 percent annual coupon and matures 5 years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent? A. The current yield-to-maturity is greater than 6 percent. B. The current yield is 6 percent. C. The next interest payment will be $30. D. The bond is currently valued at one-half of its issue price. E. You will realize a capital gain on the bond if you sell it today. Refer to section 7.1

e

52. Callable bonds generally: A. grant the bondholder the option to call the bond anytime after the deferment period. B. are callable at par as soon as the call-protection period ends. C. are called when market interest rates increase. D. are called within the first three years after issuance. E. have a sinking fund provision. Refer to section 7.2

e

54. Protective covenants: A. apply to short-term debt issues but not to long-term debt issues. B. only apply to privately issued bonds. C. are a feature found only in government-issued bond indentures. D. only apply to bonds that have a deferred call provision. E. are primarily designed to protect bondholders. Refer to section 7.2

e

56. A "fallen angel" is a bond that has moved from: A. being publicly traded to being privately traded. B. being a long-term obligation to being a short-term obligation. C. having a yield-to-maturity in excess of the coupon rate to having a yield-to- maturity that is less than the coupon rate. D. senior status to junior status for liquidation purposes. E. investment grade to speculative grade. Refer to section 7.3

e

66. "Cat" bonds are primarily designed to help: A. municipalities survive economic recessions. B. corporations respond to overseas competition. C. the federal government cope with huge deficits. D. corporations recover from involuntary reorganizations. E. insurance companies fund excessive claims. Refer to section 7.4

e

67. Mary is a retired widow who is financially dependent upon the interest income produced by her bond portfolio. Which one of the following bonds is the least suitable for her to own? A. 6-year, putable, high coupon bond B. 5-year TIPS C. 10-year AAA coupon bond D. 5-year floating rate bond E. 7- year income bond Refer to section 7.4

e

7. An indenture is: A. another name for a bond's coupon. B. the written record of all the holders of a bond issue. C. a bond that is past its maturity date but has yet to be repaid. D. a bond that is secured by the inventory held by the bond's issuer. E. the legal agreement between the bond issuer and the bondholders. Refer to section 7.2

e

70. A U.S. Treasury bond that is quoted at 100:11 is selling: A. for 11 percent more than par value. B. at an 11 percent discount. C. for 100.11 percent of face value. D. at par and pays an 11 percent coupon. E. for 100 and 11/32nds percent of face value. Refer to section 7.5

e

75. Which one of the following statements is correct? A. The risk-free rate represents the change in purchasing power. B. Any return greater than the inflation rate represents the risk premium. C. Historical real rates of return must be positive. D. Nominal rates exceed real rates by the amount of the risk-free rate. E. The real rate must be less than the nominal rate given a positive rate of inflation. Refer to section 7.6

e

82. Collingwood Homes has a bond issue outstanding that pays an 8.5 percent coupon and matures in 18.5 years. The bonds have a par value of $1,000 and a market price of $964.20. Interest is paid semiannually. What is the yield to maturity? A. 8.36 percent B. 8.42 percent C. 8.61 percent D. 8.74 percent E. 8.90 percent This cannot be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that your answer is correct.

e

89. Today, you want to sell a $1,000 face value zero coupon bond you currently own. The bond matures in 4.5 years. How much will you receive for your bond if the market yield to maturity is currently 5.33 percent? Ignore any accrued interest. A. $696.60 B. $698.09 C. $741.08 D. $756.14 E. $789.22

e