Finance ch 8

3. Which one of these represents the portion of a stock's rate of return that is attributable to the growth rate of the dividends? A) Capital gains yield B) Real rate of return C) Interest yield D) Inflation rate E) Dividend yield

A) capital gains yield

2. Based on the dividend growth model, an increase in investors' overall level of required returns will A) cause the market values of all stocks to decrease, all else held constant. B) not affect overall stock market prices. C) cause dividend growth rates to increase to offset this change. D) cause non-dividend-paying stocks to decrease in price while dividend-paying stock prices remain constant. E) cause some stock prices to rise while others fall.

A) cause the market values of all stocks to decrease, all else held constant

8. The voting procedure where a shareholder grants authority to another individual to vote his/her shares is called ________ voting. A) proxy B) deferred C) straight D) cumulative E) democratic

A) proxy

4. The total return on a stock is equal to A) Annual dividend / Current stock price. B) Capital gains yield - Dividend yield. C) Capital gains yield + Dividend yield. D) (1 + Dividend yield) × (1 + Inflation rate) - 1. E) (1 + Capital gains yield) / (1 + Dividend yield) - 1.

C) Capital gains yield + Dividend Yield

1. Alto stock pays an annual dividend of $1.10 a share and has done so for the past 6 years. No changes in the dividend amount are expected. The relevant market rate of return is 7.8 percent. Given this, one share of this stock A) is basically worthless as it offers no growth potential. B) is valued as a nonconstant growth stock. C) is valued as a perpetuity. D) is valued as a differential growth stock. E) has a current market value of $1.10.

C) is valued as a perpetuity

6. The voting procedure whereby shareholders may cast all of their votes for one candidate for the board of directors is called ________ voting. A) democratic B) deferred C) straight D) cumulative E) proxy

D) cumulative

5. According to finance professionals, which one of these factors has the biggest impact on a firm's PE ratio? A) Accounting practices of the firm B) Risk-level of the firm C) Size of the firm D) Growth opportunities E) Age of the firm

D) growth opportunities

11. The owner of preferred stock A) owns shares that generally have a stated liquidating value of $1,000 per share. B) has the right to veto the outcome of an election held by the common shareholders. C) has the right to collect payment on any unpaid dividends as long as the stock is noncumulative. D) is entitled to a distribution of income prior to the common shareholders. E) is guaranteed voting rights similar to a common shareholder.

D) is entitles to a distribution of income prior to the common shareholders

13. Lew, an individual investor, sold 100 shares of Global Tech stock on Monday. Janice, another individual investor, purchased those shares but never met Lew. You know for certain that this trade occurred in which market? A) Primary market B) Dealer market C) NASDAQ D) Secondary market E) NYSE

D) secondary market

7. The voting procedure where you must control 50 percent plus one of the outstanding shares of stock to guarantee that you will win a seat on the board of directors is called ________ voting. A) proxy B) cumulative C) deferred D) straight E) democratic

D) straight

10. Corporate dividends A) are a source of tax-free income for individual investors. B) reduce the taxable income of the payer. C) are only 70 percent taxable to corporate shareholders. D) are paid out of pretax income and thus are taxed at the personal level. E) are taxed at the personal level even though they are paid from after-tax income.

E) are taxed at the personal level even though they are from after-tax income

9. Jack owns shares of stock in Boynton Foods and wants to be elected to the company's board of directors. There are 10,000 shares of stock outstanding and each share is granted one vote for each open position on the board. Presently, the company is voting to elect two new directors. Jack can be assured of his election A) if straight voting applies and he owns at least 25 percent of the shares, plus one additional share. B) if straight voting applies and he owns at least one-third of the shares, plus one additional share. C) if cumulative voting applies and he owns 25 percent of the shares, plus one additional share. D) only if cumulative voting applies and he owns the majority of the shares. E) if cumulative voting applies and he owns one-third of the shares, plus one additional share.

E) if cumulative voting applies and he owns one-third of the shares, plus one additional share.

12. The market in which new securities are originally sold to investors is called the ________ market. A) dealer B) auction C) over-the-counter D) secondary E) primary

E) primary

14. A stock quote shows a last price of 32.13, a P/E of 17, and a net change of −.23. Based on this information, which one of the following statements is correct? A) The closing price on the previous trading day was $.23 lower than today's closing price. B) A dealer can purchase the stock for $.23 less than an investor can. C) The earnings per share decreased by $.23 a share this year. D) The earnings per share have increased by 17 percent this year. E) The earnings per share are equal to 1/17th of $32.13.

E) the earnings per share are equal to 1/17th of $32.13