Finance Midterm 2

cumulative

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?

Discount Rate

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

designated market maker (DMM)

A member who acts as a dealer in a limited number of securities on the floor of the NYSE is called a:

floor broker

A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a:

over-the-counter

A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market?

broker

An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

dealer

An agent who maintains an inventory from which he or she buys and sells securities is called a:

must still declare each dividend before it becomes an actual company liability.

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: must always show a current liability of $2,400 for dividends payable. must still declare each dividend before it becomes an actual company liability. is obligated to pay $2.40 per share each year in perpetuity. will be declared in default if it does not pay at least $2.40 per share per year on a timely basis. incurs a liability that must be paid at a later date should the company miss paying an annual dividend payment.

Primary

Ernst & 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?

$40.23

Schwartz Imports just paid an annual dividend of $2.69 per share and is expected to increase that amount by 5.2 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 12.6 percent at the time of your purchase?

Is unsustainable over the long term

Supernormal growth is a growth rate that:

50% plus 1 vote

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?

next year's

The annual dividend yield is computed by dividing _____ annual dividend by the current stock price.

proxy fight for control of the board

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? Negotiated settlement where each side is granted control over one of the open seats Protracted legal battle over control of the board of directors Arbitrated settlement where the arbitrator determines who will be elected to the board Control of the board decided without your influence Proxy fight for control of the board

$15.16

Habibi Gourmet made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.54 per share. Secondly, all dividends after that will decrease by 1.16 percent annually. What is the value of this stock at a discount rate of 9 percent?

$12.16

Nasafi Lumber paid an annual dividend of $1.37 per share yesterday. Today, the company announced that future dividends will be increasing by 3 percent annually. If you require a return of 14.6 percent, how much are you willing to pay to purchase one share of this stock today?

member

The owner of a trading license for the NYSE is called a(n):

where outstanding shares of stock are resold

The secondary market is best defined as the market:

Right to share in company profits prior to other shareholders

Valenica Corporation 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? Right to share in company profits prior to other shareholders Right to elect the corporate directors Right to vote on proposed mergers Right to all residual income after the common dividends have been paid Right to a permanent seat on the board of directors

Dividends

What are the distributions of either cash or stock to shareholders by a corporation called?

g1 can be greater than R

When using the two-stage dividend growth model: g1 cannot be negative. Pt = Dt/R. g1 must be greater than g2. g1 can be greater than R. R must be less than g1 but greater than g2.

capital gains yield

Which one of following is the rate at which a stock's price is expected to appreciate?

$13.75

How much are you willing to pay for one share of Govender stock if the company just paid an annual dividend of $1.61, the dividends increase by 4.2 percent annually, and you require a return of 16.4 percent?

g

Which one of the following represents the capital gains yield as used in the dividend growth model? D1 D1/P0 P0 g g/P0

Stocks can have negative growth rates.

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

3

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.

$36.09

The common stock of Salazar Insurance pays a constant annual dividend of $4.80 per share. What is one share of this stock worth at a discount rate of 13.3 percent?

6.41%

The common stock of Shepard Auto sells for $47.92 per share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate of return on this stock?

requires the growth rate to be less than the required return.

The dividend growth model: assumes dividends increase at a decreasing rate. only values stocks at Time 0. cannot be used to value constant dividend stocks. can be used to value both dividend-paying and non-dividend-paying stocks. requires the growth rate to be less than the required return.

Corporate shareholders may receive a tax break on a portion of their dividend income.

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