Corporate Finance
What is the price of a stock at the end of one year (P1) if the dividend for Year 2 (Div2) is $5, the price for Year 2 (P2) is $20, and the discount rate is 8 percent?
$23.15 (P1= ($5 + 20)/1.08 = $23.15)
Stocks that trade "over the counter" are called:
OTC
The NASDAQ market is a(n) ______ market rather than an auction market.
dealer
The price of a share of common stock is equal to the present value of all ______ future dividends.
expected
For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed.
false
True or false: Securities in the same risk will likely have different expected rates of return.
false
An asset's value is determined by the present value of its ______ cash flows.
future
When evaluating the value of a firm, in addition to book value, an investor may also consider which of the following?
going-concern value
A no-dividend firm can still pay off for an investor by ______.
having capital gains
A firm may choose to forgo dividends today if growth opportunities are _____.
high
You can track trades in public corporations' stock easily on the ________.
internet
A firm without growth opportunities should sell for ____ a firm with growth opportunities.
less than
A _______ order sets a price limit at which an investor is willing to buy or sell stock, whereas a market order is to simply buy or sell at the best available price.
limit
A _______ order is an order to sell stock at the best available price.
market
The __________ is found by dividing the current price per share by last year's earnings per share.
price earnings ratio
Sales of new shares of stock occur in the:
primary
The trading of existing shares occurs in the ______ market.
secondary
The two most important stock markets in the United States are the New York Stock Exchange and the ______.
NASDAQ
A computer network that connects traders directly with one another is called a(n):
ECN
You are evaluating a particular stock and observe that the companies in that stock's risk class offer an expected rate of return of 15%. You therefore expect that the stock will earn:
15%
If a zero-dividend stock is purchased for $80 and sold one year later for $84, the 1-year return is ______ percent.
5
The NASDAQ market is a dealer market rather than an _________ market.
auction
When evaluating the value of a firm, in addition to book value, an investor may also consider which of the following? a. yield value b. liquidation value c. secondary value d. going-concern value
b, d
Investors select a stock based on the cash they expect to receive from that stock. That cash comes in the form of ____. a. commissions b. interest payments c. the future sales price d. dividends
c, d
The price earnings ratio is found by dividing the current price per share by last year's ______.
earnings per share
A calculated stock price that discounts earnings instead of dividends will usually be:
too high
For investors in the stock market, neither dividends nor capital gains are fixed or guaranteed.
true
True or false: You can track trades in public corporations' stock easily on the Internet.
true