Finance

Shares of stock are first brought to the market and sold to investors in the market.

primary

If the growth rate (g) is zero, the capital gains yield is ____. Multiple choice question. higher than the dividend yield zero 100 percent cyclical

zero

o The NYSE differs from the NASDAQ primarily because the NYSE has: (2)A face-to-face auction marketA faster networkBrokersA physical location

• A face-to-face auction market • A physical location

The trading of existing shares occurs in the ______ market. Multiple choice question. tertiary primary federal secondary

secondary

The ______ can be interpreted as the capital gains yield.

growth rate

Which one of the following is true about dividend growth patterns? Dividends never have a zero growth rate. Dividends always reduce at a differential rate. Dividends may grow at a constant rate. Dividends never grow.

dividends may grow at a constant rate

true or false: A PE ratio that is based on estimated future earnings is called a regressive PE ratio.

false

True or false: Daily stock prices can only be found by looking up the stock in newspapers.

false (Up-to-the-minute stock prices are available on many websites.)

Select all that apply Which of the following are cash flows to investors in stocks? Multiple select question. Interest Capital gains Dividends Fees

capital gains; dividends

The fundamental business of the New York Stock Exchange is to attract _______. Multiple choice question. order flow customers dealers institutions

order flow

Earnings over the coming year are expected to be $3 and a benchmark PE of 15 applies to earnings over the previous year. The _____, or forecast, price over the coming year is $45. Multiple choice question. • calculated • target • actual • nominal

target

True or false: Total return is calculated by adding the dividend yield and the capital gains yield.

true

R = ______ Multiple choice question. • D1/P0 + g • D1 + P0 + g • D1/P0 + C • D1/P1 + g

D1/P0 + g

P1 = (__ + P2)/(1 + R)

D2

Websites that allow investors to trade directly with one another are termed _______. Multiple choice question. BATs RQNs CATs ECNs

Electronic Comminications Networks (ECNs)

o Match the following terms relating to stock valuation P(1) --------Next Expected DividendD(1)---------Price in one yearR---------Discount rateP(0)---------Price todayD(0)---------Dividend just paid

• P(1)-Price on one year • D(1)-Next expected Dividend • R-Discount Rate • P(0)-Price Today • D(0)-Dividend just paid

The two most important stock markets in the U.S. are the New York Stock Exchange and ______. Multiple choice question. NASDAQ the London Stock Exchange the TSX Venture Exchange the Tokyo Stock Exchange

NASDAQ

What is the formula for the present value of a growing perpetuity where C1 is the net cash flow, R is the required return and g is the growth rate?

P=C1/(R-g)

All else constant, the dividend yield will increase if the stock price ____. increases decreases

decreases

For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed.

false

The value of a firm is derived using the firm's ______ rate and its _______ rate.

growth;discount

A benchmark PE ratio can be determined using: Multiple select question. • the constant growth model • a company's own historical PEs • the PEs of similar companies • Bank of Canada estimates

• The PE's of similar companies • A company's own historical PE's

Initial public offerings of stock occur in the ____ market. Multiple choice question. primary commodities futures secondary

primary

Suppose a firm's dividends are expected to grow at a rate of 15% (g1) for 3 years (t) then stabilize at 5% (g2) forever. If the firm just paid a $2.00 (D0) dividend and the discount rate is 10% (r), what is the value of a share of the firm's stock in year 3 (P3 )? (Do not round your intermediate calculation.) Multiple choice question. • $70.54 • $75.66 • $63.88 • $81.33

D3 = D x (1+g1)t = 2X(1.15)^3 = 3.04 D4 = D3 x (1+g2) = 3.04 X 1.05 = 3.19 P3 = D4/(r-g2) = 3.19/(0.10-0.05) = 63.88

Which of the following represents the valuation of stock using a zero growth model? Multiple choice question. Discount rate/Dividend = R/D Dividend/Discount rate = D/R Dividend x Discount rate = D x R (Dividend)discount rate = DR

Dividend/Discount rate = D/R

Which of the following defines the primary market? Multiple choice question. The primary market is where stocks trade once they have been issued. Primary markets are markets for basic goods and services. The primary market is where stocks are issued for the first time. Primary markets are markets that are regulated by the Fed.

The primary market is where stocks are issued for the first time.

Which of the following are rights of common stock holders? Multiple select question. The right to share proportionally in any common dividends paid. The right to share proportionally in any residual value in the event of liquidation. First claim on any assets in the event of liquidation. The right to vote on matters of importance. The right to dividends each year

The right to share proportionally in any common dividends paid. The right to share proportionally in any residual value in the event of liquidation. The right to vote on matters of importance.

A person who brings buyers and sellers together is called a(n) ______. Multiple choice question. lawyer broker dealer investor

broker

True or false: Common stock has a set maturity

false

A PE ratio that is based on estimated future earnings is known as a ____________ PE ratio. Multiple choice question. voodoo relative target forward

forward

The ______ can be interpreted as the capital gains yield. Multiple choice question. • yield to maturity • growth rate • inflation rate • dividend yield

growth rate

Stock price reporting has increasingly moved from traditional print media to the ______ in recent years. Multiple choice question. internet network newscasts ticker tape machine radio

internet

Preferred stock has preference over common stock in the: Multiple select question. distribution of corporate assets portfolios of individual investors payment of dividends number of votes given

distribution of corporate assets; payment of dividends

In the dividend growth model, the expected return for investors comes from which two sources? Multiple select question. Dividend Yield Amount of last year's earnings Growth rate Tax rate

dividend yield and growth rate

The constant-growth model assumes that _________. Multiple choice question. debt remains constant dividends change at a constant rate stock prices remain constant

dividends change at a constant rate

This type of growth describes a company that grows quickly at first, then slower in future years. Multiple choice question. Non-constant Different Differential Fixed

non-constant

When voting for the board of directors, the number of votes a shareholder is entitled to is generally determined as follows: Multiple choice question. • two votes per share held • one vote per shareholder • one vote per share held • one vote for every 100 shares held

one vote per share held

New York Stock Exchange Designated Market Makers (DMMs) were formerly called ________ . Multiple choice question. floor traders $2 brokers floor brokers specialists

specialists

The dividend yield is determined by dividing the expected dividend (D1) by: Multiple choice question. retained earnings the discount rate (R) the current price (P0) the growth (g)

the current price (P0)

If unpaid preferred dividends must be "caught up" before any common dividends can be paid, they are called _________ dividends. Multiple choice question. make-whole preferential cumulative catch-up

cumulative

Someone who maintains an inventory of stocks and buys and sells those stocks is known as a ____. Multiple choice question. speculator dealer broker retailer

dealer

NASDAQ has which of these features? Multiple select question. Physical trading floor Multiple market maker system Single DMM system Computer network of securities dealers

• Multiple market maker system • Computer network of securities dealers

Using a benchmark PE ratio against current earnings yields a forecasted price called a _______ price. Multiple choice question. target future expected benchmark

target

Which of the following ratios might be used to estimate the value of a stock? Multiple select question. The Book-to-Value ratio The Price/Sales ratio The Price/Earnings ratio

the price/earnings ratio, the price/sales ratio

If a company's growth for Years 1 through 3 is 20% but stabilizes at 5% beginning in Year 4, its growth pattern would be described as _______.

Non-constant