Ch. 07

An agent who buys and sells securities from inventory is called a: A. floor trader. B. dealer. C. commission broker. D. broker. E. floor broker.

B. dealer.

Which one of the following statements is correct? A. Both preferred stock and corporate bonds can be callable. B. Both preferred stock and corporate bonds have a stated liquidation value of $1,000 each. C. Interest payments to bondholders as well as dividend payments to preferred shareholders are tax-deductible expenses for the issuing firm. D. Bondholders generally receive a fixed payment while preferred shareholders receive a variable payment. E. Preferred shareholders receive preferential treatment over bondholders in a liquidation.

A. Both preferred stock and corporate bonds can be callable

Which one of the following players on the floor of the NYSE is obligated to maintain a fair, orderly market for a limited number of securities? A. DMM B. Floor trader C. $2 broker D. Commission broker E. Floor broker

A. DMM

Which one of the following statements is correct? A. From a legal perspective, preferred stock is a form of corporate equity. B. All classes of stock must have equal voting rights per share. C. Common shareholders elect the corporate directors while the preferred shareholders vote on mergers and acquisitions. D. Dividends are tax-free income for individual investors. E. Shareholders prefer noncumulative dividends over cumulative dividends.

A. From a legal perspective, preferred stock is a form of corporate equity.

An individual who executes buy and sell orders on the floor of an exchange for a fee is called a: A. floor broker. B. DMM. C. floor trader. D. proxy. E. flow specialist.

A. floor broker.

The stream of customer instructions to buy and sell securities is called the: A. order flow. B. market maker. C. execution stream. D. operations flow. E. buyer's stream.

A. order flow.

Which one of the following must equal zero if a firm pays a constant annual dividend? A. Dividend yield B. Capital gains yield C. Total return D. Market value per share E. Book value per share

B. Capital gains yield

Which one of the following parties on the NYSE floor posts bid and asked prices? A. Floor traders B. DMMs C. Floor brokers D. Commission brokers E. Fee brokers

B. DMMs

Kate owns a stock with a market price of $31 per share. This stock pays a constant annual dividend of $0.60 per share. If the price of the stock suddenly increases to $36 a share, you would expect the: I. dividend yield to increase. II. dividend yield to decrease. III. capital gains yield to increase. IV. capital gains yield to decrease. A. I only B. II only C. III only D. I and III only E. II and IV only

B. II only

Which one of the following features applies to NASDAQ but not the NYSE? A. Trading in the crowd B. Multiple market maker system C. SuperDot D. Broker market E. Physical trading floor

B. Multiple market maker system

If a trade is made "in the crowd," the trade has occurred: A. between a broker and a DMM. B. between two brokers. C. electronically on NASDAQ. D. on SuperDOT. E. on an ECN.

B. between two brokers.

Aardvark, Inc. pays a constant annual dividend. At the end of trading on Wednesday, the price of its stock was $28. At the end of trading on the following day, the stock price was $27. As a result of the decline in the stock's price, the dividend yield _____ while the capital gains yield ____. A. remained constant; remained constant B. increased; remained constant C. increased; increased D. decreased; remained constant E. decreased; decreased

B. increased; remained constant

There are two open seats on the board of directors. If two separate votes occur to elect the new directors, the firm is using a type of voting that is best described as _____ voting. A. simultaneous B. straight C. proxy D. cumulative E. sequential

B. straight

Donuts Delite just paid an annual dividend of $1.10 a share. The firm expects to increase this dividend by 8 percent per year the following three years and then decrease the dividend growth to 2 percent annually thereafter. Which one of the following is the correct computation of the dividend for year 7? A. ($1.10) (1.08 × 3) (1.02 × 4) B. ($1.10) (1.08 × 3) (1.02 × 3) C. ($1.10) (1.08)3 (1.02)4 D. ($1.10) (1.08)3 (1.02)3 E. ($1.10) (1.08)3 (1.02)2

C. ($1.10) (1.08)3 (1.02)4

Which one of the following types of securities has no priority in a bankruptcy proceeding? A. Convertible bond B. Senior debt C. Common stock D. Preferred stock E. Straight bond

C. Common stock

Mary owns 100 shares of stock. Each share entitles her to one vote per open seat on the board of directors. Assume there are three open seats in the current election and Mary casts all 300 of her votes for a single candidate. What is the term used to describe this type of voting? A. Proxy B. Aggregate C. Cumulative D. Straight E. Condensed

C. Cumulative

The specific location on the floor of an exchange where a particular security is traded is called a: A. box office. B. figure 6. C. DMM's post. D. trading booth. E. seat.

C. DMM's post.

The required return on a stock is equal to which one of the following if the dividend on the stock decreases by 1 percent per year? A. (P0/D1) - g B. (D1/P0)/g C. Dividend yield + capital gains yield D. Dividend yield - capital gains yield E. Dividend yield × capital gains yield

C. Dividend yield + capital gains yield

Which one of the following is a website that enables Lester to sell his shares of ABC stock directly to Marti? A. SuperDOT B. POST C. ECN D. SEAT E. eNET

C. ECN

A DMM is a(n): A. employee who executes orders to buy and sell for clients of his or her brokerage firm. B. individual who trades on the floor of an exchange for his or her personal account. C. NYSE member who functions as a dealer for a limited number of securities. D. broker who buys and sells securities from a market maker. E. trader who deals only with primary offerings.

C. NYSE member who functions as a dealer for a limited number of securities.

On which one of the following dates do dividends become a liability of the issuer for accounting purposes? A. First day of the fiscal year in which the dividend is expected to be paid B. Twelve months prior to the expected dividend payment date C. On the declaration date D. On the date of record E. On the date of payment

C. On the declaration date

Dividends are which one of the following? A. Payable at the discretion of a firm's president B. Treated as a tax-deductible expense to the paying firm C. Paid out of aftertax profits D. Paid to holders of record as of the declaration date E. Only partially taxable to high-income individual shareholders

C. Paid out of aftertax profits

Companies can list their stock on which one of the following without having to meet listing requirements or filing financial statements with the SEC? A. NASDAQ Capital Market B. Over-the-Counter Bulletin Board C. Pink sheets D. NASDAQ Global Market E. NYSE

C. Pink sheets

What is the market called that allows shareholders to resell their shares to other investors? A. Primary B. Proxy C. Secondary D. Inside E. Initial

C. Secondary

Gleason, Inc. elects its board of directors on a staggered basis using cumulative voting. This implies that: A. if there are two open seats, then the candidate with the highest number of votes and the candidate with the lowest number of votes will be selected. B. the candidates for the open seats are voted for in individual elections. C. all open positions are filled with one round of voting, assuming there are no tie votes. D. shareholders can accumulate their votes over multiple years and cast all those votes in one election. E. the firm's entire board of directors is elected annually in one combined election.

C. all open positions are filled with one round of voting, assuming there are no tie votes.

Dividends are best defined as: A. cash payments to shareholders. B. cash payments to either bondholders or shareholders. C. cash or stock payments to shareholders. D. cash or stock payments to either bondholders or shareholders. E. distributions of stock to current shareholders.

C. cash or stock payments to shareholders.

Many of the smaller sell orders sent to the floor of the NYSE are: A. handled by the floor traders. B. purchased by the commission brokers. C. electronically transmitted to the DMMs. D. executed on an ECN. E. executed in the primary market.

C. electronically transmitted to the DMMs.

The owner of a trading license who trades on the floor of the NYSE for his or her personal account is called a(n): A. DMM. B. independent broker. C. floor trader. D. stand-alone agent. E. dealer.

C. floor trader.

The NYSE: A. presently conducts all of its trading through SuperDOT. B. is a dealer market. C. is in the business of attracting order flow. D. is solely a primary market. E. is based on a multiple market maker system.

C. is in the business of attracting order flow.

Inside quotes are defined as the: A. bid and asked prices presented by NYSE DMMs. B. last bid and asked price offered prior to the market close. C. lowest asked and highest bid offers. D. daily opening bid and asked quotes. E. last traded bid and asked prices.

C. lowest asked and highest bid offers

The dividend yield is defined as: A. the current annual cash dividend divided by the current market price per share. B. the current annual cash dividend divided by the current book value per share. C. next year's expected cash dividend divided by the current market price per share. D. next year's expected cash dividend divided by the current book value per share. E. next year's expected cash dividend divided by next year's expected market price per share.

C. next year's expected cash dividend divided by the current market price per share.

To be a member of the NYSE, you must: A. be a primary dealer B. buy a seat. C. own a trading license. D. be registered as a floor trader. E. be a DMM.

C. own a trading license.

Delfino's expects to pay an annual dividend of $1.50 per share next year. What is the anticipated dividend for year 5 if the firm increases its dividend by 2 percent annually? A. $1.50 × (1.02)1 B. $1.50 × (1.02)2 C. $1.50 × (1.02)3 D. $1.50 × (1.02)4 E. $1.50 × (1.02)5

D. $1.50 × (1.02)4

Jensen Shipping has four open seats on its board of directors. How many shares will a shareholder need to control to ensure that his or her candidate is elected to the board given the fact that the firm uses straight voting? Assume one share equals one vote. A. 20 percent of the shares plus one vote B. 25 percent of the shares plus one vote C. one-third of the shares plus one vote D. 50 percent of the shares plus one vote E. 51 percent of the shares plus one vote

D. 50 percent of the shares plus one vote

You have agreed to pay a 5 percent commission to your best friend if he can locate a buyer for your car. This arrangement is most similar to the compensation arrangement for which one of these individuals who is involved with the stock market? A. DMM B. Floor trader C. Market maker D. Commission broker E. Dealer

D. Commission broker

Which one of the following generally pays a fixed dividend, receives first priority in dividend payment, and maintains the right to a dividend payment, even if that payment is deferred? A. Cumulative common B. Noncumulative common C. Noncumulative preferred D. Cumulative preferred E. Senior common

D. Cumulative preferred

What is the name given to the model that computes the present value of a stock by dividing next year's annual dividend amount by the difference between the discount rate and the rate of change in the annual dividend amount? A. Stock pricing model B. Equity pricing model C. Capital gain model D. Dividend growth model E. Present value model

D. Dividend growth model

The more actively traded large companies that are listed on NASDAQ are traded in which one of the NASDAQ markets? A. National B. Capital C. Regional D. Global Select E. Global

D. Global Select

The dividend growth model can be used to value the stock of firms that pay which type of dividends? I. Constant annual dividend II. Annual dividend with a constant increasing rate of growth III. Annual dividend with a constant decreasing rate of growth IV. Zero dividend A. I only B. II only C. II and III only D. I, II, and III only E. I, II, III, and IV

D. I, II, and III only

Kate could not attend the last shareholders' meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which one of the following terms is used to describe the method by which Kate's shares were voted? A. Straight B. Cumulative C. Consent-form D. Proxy E. In absentia

D. Proxy

Computing the present value of a growing perpetuity is most similar to computing the current value of which one of the following? A. Non-dividend-paying stock B. Stock with a constant dividend C. Stock with irregular dividends D. Stock with a constant growth dividend E. Stock with growing dividends for a limited period of time

D. Stock with a constant growth dividend

A person who executes customer orders to buy and sell securities on the floor of the NYSE is called a: A. floor trader. B. DMM. C. runner. D. commission broker. E. market maker.

D. commission broker.

Any person who owns a license to trade on the NYSE is called a: A. dealer. B. floor trader. C. DMM. D. member. E. proxy.

D. member.

The price of a stock at year 4 can be expressed as: A. D0/(R + g4). B. D0 × (1 + R)5. C. D1 × (1 + R)5. D. D4/(R - g). E. D5/(R - g).

E. D5/(R - g).

The capital gains yield equals which one of the following? A. Total yield B. Current discount rate C. Market rate of return D. Dividend yield E. Dividend growth rate

E. Dividend growth rate

Which one of the following will increase the current value of a stock? A. Decrease in the dividend growth rate B. Increase in the required return C. Increase in the market rate of return D. Decrease in the expected dividend for next year E. Increase in the capital gains yield

E. Increase in the capital gains yield

Newly issued securities are sold to investors in which one of the following markets? A. Proxy B. Stated value C. Inside D. Secondary E. Primary

E. Primary

A broker is an agent who: A. trades on the floor of an exchange for himself or herself. B. buys and sells from inventory. C. offers new securities for sale to dealers only. D. is ready to buy or sell at any time. E. brings buyers and sellers together.

E. brings buyers and sellers together.

If shareholders are granted a preemptive right they will: A. be given the choice of receiving dividends either in cash or in additional shares of stock. B. be paid dividends prior to the preferred shareholders during the preemptive period. C. be entitled to two votes per share of stock. D. be able to choose the timing and amount of any future dividends. E. have priority in the purchase of any newly issued shares.

E. have priority in the purchase of any newly issued shares.