Chapter 10

What is the value of a stock expected to pay a constant $5 dividend each year forever, if the market required rate of return is 18%?

$28

Suppose Zina & Co. has an expected dividend next year of $5.6 per share, a growth rate of dividends of 10 percent, and a required return of 20%. The value of a share of common stock is.

$56.00

Sampson Corporation, through its investment banker, First Ohio Securities, recently sold 200,000 shares of common stock to the public, grossing $7.4 million. Issuing expenses paid by Sampson totaled $200,000, and the underwriter's spread was $3 per share. How much net financing did Sampson Corporation raise in the deal?

$6.6 million

If the risk-free rate is 7%, the return on the market portfolio is 15%, and the beta is 1.5, what is the value of the stock if the current dividend (D0) is $1.20 and it is expected to grow at a constant rate of 6% per year?

$9.80

The New York Stock Exchange is a(n) ________ market.

-auction -exchange -secondary

A stock purchased at $40 at the beginning of the year paid $10 in dividends and was sold for a net price of $42 at the end of the year. The total annual return is

30%

An order to the New York Stock Exchange to buy or sell at the best price available is called

a market order.

Which of the following is not an example of capital market securities?

commercial paper

Since your grandmother supports your tuition at college, she wants to make sure it is worthy to invest in your education. She is wondering if you can tell her the key differences between common stock and bonds. Which of the following is NOT accurate?

common stockholders have a senior claim on assets and income relative to bondholders.

Which of the following terms is not associated with common stock?

contractual

Stock with betas less than one tend to have more price variability than the market.

false

Systematic risk can be significantly reduced through diversification.

false

The capital market is allocationally efficient if

funds are channeled to their most productive use. only if informational and operational market efficiencies are high.

Which of the following is not a result of advances in technology and competition in equity markets?

higher transaction costs

Security exchanges provide a valuable function in that they

increase the marketability of securities.

All of the following features may be characteristics of preferred stock EXCEPT

tax-deductible dividends

The primary federal regulator of stock markets is

the Securities and Exchange Commission.

Preferred stockholders have a claim junior to common stock but senior to bondholders.

true

The Dow Jones Industrial Average is a price-weighted index.

true

The NASDAQ is a stock exchange.

true