FIN 310 Ch. 7

Which one of the following types of securities has no priority in a bankruptcy proceeding?

Common stock

Which one of the following generally pays a fixed dividend, receives first priority in dividend payment, and maintains the right to a dividend payment, even if that payment is deferred?

Cumulative preferred

A specialist is a(n):

NYSE member who functions as a dealer for a limited number of securities.

Newly issued securities are sold to investors in which one of the following markets?

Primary

A broker is an agent who:

brings buyers and sellers together.

An agent who buys and sells securities from inventory is called a:

dealer

Inside quotes are defined as the:

lowest asked and highest bid offers.

Solinux, Inc., is a young start-up company and will not pay dividends on its stock for the next 8 years, since the firm needs to plow back its earnings to fuel growth. The company will then pay a $1.55 per share dividend in year 9 and will increase the dividend by 4.3 percent per year thereafter. If investors require 8.1 percent return to invest in this stock, what is its current share price?

21.87% P0 = D1/ (r - g) / (1+r)8

Mackery, Inc., has an outstanding issue of preferred stock that pays a $5.19 dividend every year. If this issue currently sells for $118.39 per share, what return to market investors require on it currently?

4.38% $5.19/$118.39

ASD Corp. will pay a dividend of $1.94 on each of its common shares next year. The company has stated that it will maintain a constant growth rate of 4.1% per year forever. If you require 7% return to invest in ASD stock (and assuming you agree with ASD's growth projections), how much will you pay per share?

66.9% Using the constant growth model, the stock price today is: P0 = D1/ (r - g)