FRL 300 Chapter 8
True or false: With more than one class of common stock, it is easier for insiders such as founding families to maintain control of the company.
True
Stock price reporting has increasingly moved from traditional print media to the ______ in recent years.
internet
Investment firms that are active participants in stocks assigned to them are called _________ liquidity providers.
supplemental
Dusty Corporation has an issue of preferred stock that pays a dividend of 7 percent of its state value, which is $100. Which of the following would be a commonly used name for that preferred stock?
$7 preferred
NASDAQ has which of these features?
Computer network of securities dealers Multiple market maker system
Which of the following represents the valuation of stock using a zero-growth model?
Dividends/Discount rate
Which of the following occurs in the primary market?
Newly-issued stocks are initially sold
An NYSE member who acts as a dealer in particular stocks is called a _______ market maker.
designated
One common reason for having two classes of common stock with different voting rights is _____.
it is easier for insiders such as founding families to maintain control of the company
Three special case patterns of dividend growth include _____.
nonconstant growth zero growth constant growth
Preferred stock has preference over common stock in the _____.
payment of dividends distribution of corporate assets
Mota Motors has eight directors on its board, two of whom go up for election each year. This is an example of a:
staggered board
When assuming nonconstant growth in dividends, to avoid the problem of having to forecast and discount an infinite number of dividends, we must require that the dividends _____.
start growing at a constant rate sometime in the future
The goal of many successful organizations is a(n) ______ rate of growth in dividends.
steady
The trading of existing shares occurs in the ______ market.
secondary
The NYSE member who acts as a dealer in a small number of securities is called a(n) _____.
specialist
A person who brings buyers and sellers together is called a(n) ______.
broker
An NYSE member who executes customer buy and sell orders is called a _______ broker
floor
When applying two-stage growth, in the second stage, g2 _____.
must be less than R
Which of the following entities declares a dividend?
The board of directors
True or false: It can be advantageous to have a staggered board because it provides "institutional memory."
True
When the stock being valued does not pay dividends,
the dividend growth model can still be used.
The idea for ____________-stage growth is that the dividend will grow at a rate of g1 for t years and then grow at a rate of g2 thereafter, forever.
2
One reason corporations use staggered boards is that _____.
it makes takeover attempts less likely to be successful
Someone who maintains an inventory of stocks and buys and sells those stocks is known as a ____.
dealer
Which of the following are expected cash flows to investors in stocks?
Dividends Capital gains
Preferred shares have a stated liquidating value, typically $_____ per share.
100
A zero-growth stock pays a dividend of $2 per share and has a discount rate of 10%. What will the stock's price be?
20.00 Reason: P0 = $2/0.10 = $20
Suppose Bob owns 20 shares and Vikki owns 30 shares in Good Company, and there are five members of the board of directors. Under which voting arrangement can Bob assure himself of a board member that represents his interests?
Cumulative voting
What information do we need to determine the value of stock using the zero-growth model?
Discount rate Annual dividend amount
A _______ is a payment by a corporation to shareholders, made in either cash or stock.
dividend
A stock with dividend priority over common stock is called a Blank______ stock.
preferred
Initial public offerings of stock occur in the ____ market.
primary
Which one of the following is true about dividend growth patterns?
Dividends may grow at a constant rate.
For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed.
False
Most voting in large corporations is done by proxy because _____.
most small shareholders do not attend the annual meeting
When voting for the board of directors, the number of votes a shareholder is entitled to is generally determined as follows:
one vote per share held
True or false: Cumulative voting means board members are elected one at a time, with each shareholder casting his or her allotted votes for each seat on the board.
False
Which of the following are features of common stock?
It has no special preference in bankruptcy. It generally has voting rights. It has no special preference in receiving dividends.
WinWin Corporation has five board members, and each shareholder gets one vote per share. The company uses a straight board voting procedure. How does this arrangement affect minority shareholders?
No minority shareholder would have enough votes to win any seat on the board.
Which of the following are reasons why it is more difficult to value common stock than it is to value bonds?
The rate of return required by the market is not easily observed. The life of a common stock is essentially forever. Common stock cash flows are not known in advance
Common stock has no special preference either in _________ receiving or in bankruptcy.
dividends
The assumption of constant growth infers that _________.
dividends change at a constant rate
A ___________ is the grant of authority by a shareholder to someone else to vote his or her shares.
proxy
With ____________ voting, the directors are elected one at a time and the only way to guarantee a seat is to own 50 percent plus one share.
straight
The main reason for considering nonconstant growth in dividends is to allow for _____ growth rates over _____.
supernormal; some finite length of time
A benchmark PE ratio can be determined using:
the PEs of similar companies a company's own historical PEs