Principle of Finance Chapter 7
False
For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed.
straight, fifty, one
Under a __________ voting mechanism, the minimum number of votes required to acquire a seat on the board is ________% plus _________.
False; forward PE ratio
A PE ratio that is based on estimated future earnings is called a regressive PE ratio.
the PEs of similar companies, a company's own historical PEs
A benchmark PE ratio can be determined using:
proxy
A written authorization for one shareholder to vote the stock of another shareholder is called a(n) ______.
decreases
All else constant, the dividend yield will increase if the stock price ______.
False
Common stock has a set maturity.
R
Discount rate
D0
Dividend just paid
target
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.
zero
If the growth rate (g) is zero, the capital gains yield is ______.
50 percent of the stock + 1 share
If there are nine directors that need to be elected, how many shares do you need to own in order to guarantee a seat on the board under straight voting?
10 percent of the stock plus 1 share
If there are nine directors to be elected, what is the least number of shares you will need to guarantee a seat on the board under cumulative voting?
250
If you hold 50 shares of a particular corporation's common stock and there are 5 directors to be elected, how many votes will you be allowed to cast under cumulative voting?
primary
Initial public offerings of stock occur in the ______ market.
D1
Next expected dividend
P1
Price in one year
P0
Price today
growth rate
The ______ can be interpreted as the capital gains yield.
the current price (P0).
The dividend yield is determined by dividing the expected dividend (D1) by:
secondary
The trading of existing shares occurs in the ______ market.
growth; discount
The value of a firm is derived using the firm's ______ rate and its ______ rate.
True
Total return is calculated by adding the dividend yield and the capital gains yield.
It provides institutional memory.
What beneficial purpose does staggering serve?
the right to vote on behalf of another shareholder
What right does a proxy give to a shareholder?
one vote per share held
When voting for the board of directors, the number of votes a shareholder is entitled to is generally determined as follows:
capital gains and dividends
Which are cash flows to investors in stocks?
Stock has no set maturity, the required rate of return is unobservable, dividends are unknown and uncertain.
Which of the following are reasons that make valuing a share of stock more difficult than valuing a bond?
the right to share proportionally in any residual value in the event of liquidation, the right to share proportionally in any common dividends paid, the right to vote on matters of importance
Which of the following are rights of common stock holders?
The primary market is where stocks are issued for the first time.
Which of the following defines the primary market?
the price-earnings ratio
Which of the following ratios might be used to estimate the value of a stock?
staggard
Which type of voting procedure provides "institutional memory"?