fin ch 7

Who determines the amount of any dividend to be paid? company president existing shareholders chief financial officer board of directors chairman of the board

board of directors

The security that represents the residual ownership of a firm and has no priority in bankruptcy is called: a convertible bond. senior debt. common stock. preferred stock. retained earnings.

common stock.

The voting system whereby a shareholder can cast all of his or her votes for a single candidate for the board of directors is called _____ voting. proxy aggregate cumulative straight condensed

cumulative

The valuation model that computes the current value of a stock by dividing next year's dividend by the net of the discount rate minus the dividend growth rate is called the _____ model. stock price equity pricing capital gain dividend growth current value

dividend growth

Prefe

does

NASDAQ is a(n): electronic dealer market. electronic broker market. market based on specialists. dealer market with a single market maker. electronic ECN.

electronic dealer market.

An NYSE member who is a floor broker: Answer buys and sells on the floor of the exchange for his or her personal account. buys and sells from inventory. serves as a market maker for a limited number of securities. executes orders for commission brokers on a fee basis. is employed by a brokerage firm to execute orders for the firm's clients.

executes orders for commission brokers on a fee basis.

A member of the NYSE who trades on the floor of the exchange for his or her personal account is called a(n): specialist. independent broker. floor trader. stand-alone agent. dealer.

floor trader.

The lowest ask quote and the highest bid quote are referred to as the _____ quotes. primary edge ledge special inside

inside

The NYSE: has 2,500 members. is a dealer market. is in the business of attracting order flow. became totally electronic in 2006. is based on a multiple market maker system.

is in the business of attracting order flow.

Preferred stock: generally has a liquidating value of $1,000 per share. pays dividends only when the firm has positive net earnings. may have an obligatory sinking fund. pays interest on any deferred dividends. is never callable.

may have an obligatory sinking fund.

The divid

nee.

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

order flow.

Coats

$

The

$

Straight voting is defined as the process where the directors of a corporation are elected: simultaneously. one at a time. solely through the use of proxies. for a single year only. by each shareholder casting a single vote.

one at a time.

Alien Industries just paid an annual dividend of $1.50 and is expected to pay annual dividends of $1.65 and $2.805 per share the next two years, respectively. After that, the firm expects to maintain a constant dividend growth rate of 5 percent per year. What is the value of this stock today if the required return is 13 percent? $29.56 $29.97 $30.29 $32.06 $32.49

$32.49

A preferred stock sells for $30.65 a share and has a market return of 13.05 percent. What is the dividend amount? $2.35 $2.50 $3.26 $4.00 $4.14

$4.00

Sander's Supplies has paid a constant dividend of $2.15 a share for the past 20 years. Yesterday, the firm announced that the dividend will increase next year by 5 percent and will stay at the level for three years, after which time the dividends will increase by 4 percent annually. The required return on this stock is 9 percent. What is the current value per share? $41.97 $43.49 $48.82 $54.07 $56.42

$41.97

Given the following partial stock quote, what was yesterday's closing price for M&N Company? stock-m&n, div 2.7, yld%-6, PE 23, HI 48.76, LO 41.23, close?, net change -1.52 $42.75 $43.48 $45.25 $46.52 $47.24

$46.52

The Jones Brothers announced today that its next annual dividend will be $2.00 per share. After that dividend is paid, the company expects to encounter some financial difficulties and is going to suspend dividends for 10 years. After that a constant dividend of $1.50 per share will be paid annually. The market rate of return on this stock is 12 percent. What is the current value of this stock given this announcement? $4.82 $4.99 $5.21 $5.38 $5.59

$5.38

Given the following partial stock quote, what was the net income for BCB Co. for the most recent four quarters if the firm has 500,000 shares outstanding? stock-bcb, div 1.7, yld%-8, PE 17, HI 24.17, LO 19.53, close?, net change -.35 $625,000 $850,000 $975,000 $1,050,000 $1,350,000

$625,000

Presto's just paid an annual dividend of $1.25 per share. The firm has a policy whereby it increases its dividend by 2 percent annually. Which one of the following is the correct computation for the capital gains yield if the current stock price is $21 a share? (.02 (x)$1.25) / $21 $1.25 / $21 .02 .02 / $21 [$1.25 (x)(1 + .02)] / $21

.02

Julie owns a stock with a market price of $43 per share. This stock pays a constant annual dividend of $1.34 a share. If the price of the stock suddenly falls to $31 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.

1

Which of the following represent differences between the NYSE and NASDAQ? I. number of market makers II. broker versus dealer market III. presence of a physical trading floor IV. presence of order flow

1 2 3

Which of the following affect the current price of a stock? I. dividend growth rate II. required return III. dividend paid this year IV. expected dividend next year

1 2 4

Preferred stock: I. generally has a fixed dividend. II. generally has a dividend that increases annually. III. receives preference in bankruptcy over bonds. IV. receives preference in bankruptcy over common stock.

1 4

The Flower & Gift Co. pays a constant annual dividend of $1.74 a share and currently sells for $15.00 a share. What is the rate of return? 3.87 percent 4.64 percent 5.80 percent 10.40 percent 11.60 percent

11.60 percent

Which of the following are correct computations for the total return on a stock? I. (Pt-Pt+1 + Dt+1) / Pt+1 II. (Pt+1 Pt + Dt+1) / Pt III. Dividend yield + Capital gains yield IV. Dividend yield − Capital gains yield

2 3

The smallest firms listed on NASDAQ are in the NASDAQ _____Market. National Capital Regional Global Select Global

Capital

The pric

D6

A Web site that enables an investor to trade directly with another investor is called a(n): SuperDOT. POST. ECN. SEAT. NET.

ECN.

A sp

NY

The primary benefit of cumulative voting is: an increased probability that the largest shareholder will be able to control the entire board of directors. the ability of the shareholders to replace the entire board of directors in one election. the ability to vote by proxy. an increased probability that minority shareholders can elect at least one director of their choice. that each shareholder receives an equal number of total votes.

an increased probability that minority shareholders can elect at least one director of their choice.

A broker is an agent who: trades on the floor of an exchange for himself or herself. buys and sells from inventory. offers new securities for sale to dealers only. mediates sales between dealers. arranges transactions among investors.

arranges transactions among investors.

The dividend growth rate is referred to as the: capital gains yield. discount rate. market rate. dividend yield. total return.

capital gains yield.

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

commission broker.

The largest number of NYSE members are registered as: floor traders. specialists. runners. commission brokers. fee brokers.

commission brokers.

An agent who buys and sells securities from inventory is called a: floor trader. dealer. commission broker. broker. floor broker.

dealer.

Dividends become a liability of a firm on the: Answer first day of each fiscal year. last day of each fiscal year. declaration date. date of record. payment date.

declaration date.

Holiday Markets pays a constant dividend. At the end of trading on Wednesday, the price of its stock was $43.16. At the end of trading on Thursday, the stock price was $44.08. The dividend yield _____ from Wednesday to Thursday while the capital gains yield _____ over that period. remained constant; remained constant increased; remained constant increased; increased decreased; remained constant decreased; decreased

decreased; remained constant

The dividend growth model is based on the assumption that the: dividend increases by a positive amount each year. dividend either remains constant or increase by a positive amount each year. capital gains yield is a positive value. growth rate exceeds the discount rate. discount rate is greater than the growth rate.

discount rate is greater than the growth rate.

You want to be elected to the board of directors of the Greenberg Corp. The firm has a policy of using straight voting. To ensure your election to the board, assuming no one else votes for you, you will need to: own more shares of the firm than any other shareholder. own more than one-third of the outstanding shares. vote by proxy whether or not you attend the shareholders' meeting. own a majority of the outstanding shares. purchase the entire firm.

own a majority of the outstanding shares.

Since 2006, a member is a(n): owner of a seat on the NYSE. owner of a trading license on the NYSE. shareholder of the NYSE. employee of the NYSE. owner of the NYSE.

owner of a trading license on the NYSE.

All of the following are characteristics of common stock except the: Answer ability to vote for corporate directors. ability to vote on key issues such as a merger. priority over other equity in a bankruptcy proceeding. right to share proportionally in dividends paid to common shareholders. right to share proportionally in any residual value in a bankruptcy proceeding.

priority over other equity in a bankruptcy proceeding.

If I grant another individual the right to vote on my behalf for the directors of a corporation, I am voting by: the straight method. the cumulative method. consent. proxy. preference.

proxy.

The market where one shareholder sells shares to another shareholder is called the _____ market. primary main secondary principal dealer

secondary

Which one of the following describes the primary method by which a dealer earns a profit? .collecting a commission on each share of stock he or she buys or sells for a customer .charging a flat $2 fee for each trade he or she executes .setting his or her bid price higher than his or her ask price .setting his or her ask price higher then his or her bid price .collecting a salary from a brokerage house

setting his or her ask price higher then his or her bid price

The location on the floor of an exchange where an individual security is traded is called the: box office. figure 8. specialist's post. trading booth. seat.

specialist's post.

Sun Tans pays a constant annual dividend. Over the past year, the required return on this firm's stock increased. Given this information you know that over the past year: the stock price had to decrease. the stock price had to increase. the capital gains rate had to increase. the capital gains rate had to decrease. the stock price decreased and the capital gains yield increased.

the stock price had to decrease.

The

wher

Ted's Tools expects to commence paying an annual dividend two years from now. The first dividend is expected to be $.75 per share with all dividends thereafter increasing by 2 percent annually. What is the expected dividend in year 5? $.75 (x)(1.02)3 $.75 (x)(1.02)4 $.75 (x)(1.02)5 $.75 (x)(1.02)6 $.75 (x)(1.02)7

$.75 (x)(1.02)3

The common stock of the Paper & Printing Co. is selling for $22 a share and has a dividend yield of 4.5 percent. What is the dividend amount? $.49 $.67 $.99 $2.05 $2.22

$.99

Anthon

$1

B&T, Inc.

$1

Rosie's just paid a dividend of $1 per share. The firm maintains a constant dividend policy and distributes dividends on an annual basis. The firm is growing by 2.5 percent per year. What is the anticipated dividend for year 3? $1 $1 (x)(1.025)1 $1 (x)(1.025)2 $1 (x)(1.025)3 $1 (x)(1.025)4

$1

SR

$1

Andrew Thompson owns 65,000 shares of Beta Enterprises. His shares have a total market value of $1,820,000. In total, Beta Enterprises has 250,000 shares outstanding. Each share is entitled to one vote under the straight voting policy of the firm. The next election is in three months at which time three directors are up for election. How much more must Andrew invest in this firm to guarantee that he is elected to the board? $0 $513,361 $625,000 $1,680,028 $1,750,000

$1,680,028

Art Designs, Inc. has 325,000 shares of cumulative preferred stock outstanding. The stock is supposed to pay $2.00 in dividends per share each quarter. Due to an unexpected event, the company has missed the last two quarterly payments on its preferred stock. What is the total amount of dividends it must pay to the preferred shareholders next quarter if it plans to a pay a $1.15 dividend to its common shareholders at that time? $650,000 $1,300,000 $1,673,750 $1,950,000 $2,323,750

$1,950,000

The Sweet Shoppe is planning on paying a dividend of $1.25 a share next year. The firm expects to increase this dividend by 10 percent per year the following two years and then decrease the dividend growth to 3 percent annually thereafter. Which one of the following is the correct computation of the dividend for year 5? $1.25 (x){(2 (x)1.1) + [2 (x)(1 .03)]} $1.25 (x)[2(x) (1.1(x) 1.03)] $1.25 (x)1.12 (x)(1 .03)2 $1.25 (x)1.12 (x)1.032 $1.25 (x)1.12(x) 1.033

$1.25 (x)1.12 (x)1.032

The common stock of Carter & Sons is selling for $29 a share and has a 17 percent rate of return. The growth rate of the dividends is 12 percent annually. What is the amount of the next dividend? $1.38 $1.45 $1.52 $4.25 $4.34

$1.45

Boots Roofing just paid its annual dividend of $.90 a share. The firm recently announced that all future dividends will be increased by 3.5 percent annually. What is one share of this stock worth to you if you require a 12 percent rate of return? $10.30 $10.35 $10.59 $10.78 $10.96

$10.96

Jon's Catering is growing at a very fast rate. As a result, the company expects to increase its dividend to $.45, $.95, $1.60, and $2.15 over the next four years, respectively. After that, the dividend is projected to increase by 6 percent annually. The last annual dividend the firm paid was $.30 a share. What is the current value of this stock if the required return is 17 percent? $12.97 $13.13 $13.77 $14.28 $14.58

$14.28

High Class Jewelry is a specialty company in the fine jewelry market. Based on its latest projections, the company expects to increase its annual dividend by 20 percent per year for the next two years and by 15 percent per year for the following two years. After that, the company plans to pay a constant annual dividend of $2.50 a share. The last dividend paid was $1.50 a share. What is the current value of this stock if the required rate of return is 14 percent? $15.48 $15.88 $17.18 $17.38 $18.68

$17.18

Sid's Video Store will pay an annual dividend of $2.15 next month. The company just announced that future dividends will be increasing by 1.5 percent annually. How much are you willing to pay for one share of this stock if your required return is 14 percent? $15.36 $16.13 $17.20 $18.06 $19.42

$17.20

Capello's

$2

Scenic Images paid an annual dividend of $1.85 per share last year. Management just announced that future dividends will increase by 3 percent annually. What is the amount of the expected dividend in year 4? $1.91 $1.96 $2.02 $2.08 $2.14

$2.08

Tri-State Industries has both common and noncumulative preferred stock outstanding. The dividends on these stocks are $1.35 each quarter for the common and $2.10 each quarter for the preferred. The company has not paid any dividends for the past three quarters but is expected to pay dividends on both the common and the preferred stock next week. What is the minimum amount the firm must pay per share to its preferred stockholders next week if it plans to pay a common dividend? $0 $2.10 $4.20 $6.30 $8.40

$2.10

The common stock of the Cap & Gown Company is selling for $31.80 per share. The company pays a constant annual dividend and has a dividend yield of 7 percent. What is the amount the dividend? $2.23 $2.39 $3.27 $3.81 $4.54

$2.23

Given the following partial stock quote, what is the amount of the dividend if yesterday's closing price was $28.01? stock-RMN, div ?, yld%- 7.5, PE ?, HI 30.19, LO 26.34, close?, net change +1.99 $2.10 $2.15 $2.20 $2.25 $2.35

$2.25

The Johnston Company will pay an annual dividend of $2.05 next year. The company has increased its dividend by 3.5 percent a year for the past twenty years and expects to continue doing so. What will a share of this stock be worth three years from now if the required return is 14 percent? $20.21 $20.91 $21.65 $22.41 $22.79

$21.65

Happy Valley, Inc. stock is valued at $51.40 a share. The company pays a constant dividend of $3.80. What is the required return on this stock? 3.70 percent 5.21 percent 7.39 percent 10.56 percent 14.79 percent

7.39 percent

Square Industries does not expect to pay any dividends for the next three years. Four years from now, the firm hopes to pay $.60 a share and double that amount each year for the following three years. After that, the dividend is expected to increase in value by 3 percent annually. What is the value of this stock today if the required return is 12 percent? $27.13 $29.30 $30.38 $31.76 $32.81

$29.30

Samson E

$3

Northwest, Inc. stock is selling for $40.59 a share based on a 10 percent rate of return. What is the amount of the next annual dividend if the dividends are increasing by 2 percent annually? $3.18 $3.25 $3.31 $3.38 $3.45

$3.25

Tullio, Inc. has 220,000 shares of stock outstanding with a current market value of $34 a share. You own 40,000 of those shares. Next month, the election will be held to select three new members to the board of directors. The firm uses a cumulative voting system. How much additional money do you need to spend to guarantee that you will be elected to the board assuming that everyone else votes for one of the other candidates? $510,034 $880,034 $1,133,367 $1,360,000 $1,870,034

$510,034

Joanne's Jewelry has decided to offer new preferred stock for sale that it will call an 8-8 offering. This stock will pay an annual dividend of $8 a share starting 8 years from now. If your required return is 8 percent, how much are you willing to pay for one share of this stock today? $54.03 $58.35 $92.59 $96.16 $100.00

$58.35

The common stock of Ridgeway Properties will pay an annual dividend of $2.70 one year from now. The company increases the dividends by 4 percent annually. Your required return on this stock is 13 percent. Assume that you purchase the stock today and sell it five years from now. What will be the dollar amount of your capital gain for those five years? $3.75 $5.10 $6.50 $7.96 $8.90

$6.50

If there are five open positions on the board of directors, you need to control _____ of the outstanding shares to guarantee that the candidate of your choice is elected given that the firm uses cumulative voting. 10.00 percent plus one 15.00 percent plus one 16.67 percent plus one 20.00 percent plus one 33.33 percent plus one

16.67 percent plus one

Dividends are payments: I. of cash only. II. of either cash or stock. III. to bondholders. IV. to shareholders.

2 4

A stock has

2.8

There are three open positions on the board of directors of Morgan, Inc. The company has 150,000 shares of stock outstanding. Each share is entitled to one vote. How many shares of stock must you own to guarantee your personal election to the board of directors if the firm uses cumulative voting? 30,001 shares 37,501 shares 50,001 shares 55,251 shares 75,001 shares

37,501 shares

For the past five years, the price of Microprocessors, Inc. stock has been increasing at a rate of 9 percent a year. Currently, the stock is priced at $56 a share and has a required return of 13 percent. What is the dividend yield? 4.00 percent 5.04 percent 7.28 percent 15.96 percent 22.00 percent

4.00 percent

Locksmith's is expected to pay an annual dividend of $.75 this month. The stock is selling for $10.90 a share and has a required return of 11 percent. What is the growth rate of the dividend? 3.62 percent 3.85 percent 3.94 percent 4.12 percent 4.27 percent

4.12 percent

The McDonald Brothers uses straight voting. The upcoming election involves four open seats on the board of directors. What percentage of the votes must you control to guarantee that your candidate will serve on the next board? 20.00 percent plus one 25.00 percent plus one 33.33 percent plus one 50.00 percent plus one 66.67 percent plus one

50.00 percent plus one

A stock has paid dividends of $2.20, $2.35, $2.50, $2.65, and $2.80 over the past five years, respectively. What is the average capital gains yield? 4.51 percent 4.97 percent 6.22 percent 6.82 percent 8.29 percent

6.22 percent

Last year, when the stock of Shipping Enterprises was selling for $48 a share the dividend yield was 4.5 percent. Today, the stock is selling for $46 a share. What is the current required return on this stock if the company maintains a constant dividend growth rate of 3 percent? -9.13 percent -4.17 percent 1.50 percent 7.70 percent 7.84 percent

7.84 percent

The required return on Meadowland's stock is 11 percent and the dividend growth rate is 2.5 percent. The stock is currently selling for $23.50 a share. What is the dividend yield? 2.59 percent 5.88 percent 8.50 percent 10.00 percent 13.50 percent

8.50 percent

Sarah's Sweets pays an annual dividend of $1.45 per share and sells for $35.50 a share based on a market rate of return of 13 percent. What is the capital gains yield? 4.08 percent 4.36 percent 4.86 percent 8.63 percent 8.92 percent

8.92 percent

The common stock of Bethel Baked Goods is valued at $8.76 a share. The company increases its dividend by 1.5 percent annually and expects its next dividend to be $.65 per share. What is the required rate of return on this stock? 6.64 percent 7.53 percent 8.92 percent 9.03 percent 10.17 percent

8.92 percent

Investors receive a total return of 15 percent on the common stock of Nickel and Dime, Inc. The stock is selling for $28.25 a share. What is the growth rate of the firm if the company plans to pay an annual dividend of $1.70 a share next year? 4.24 percent 8.98 percent 11.80 percent 13.19 percent 16.62 percent

8.98 percent

The electronic system that transmits orders directly to a specialist on the floor of the NYSE is called: NASDAQ. SuperDOT. TICKER. ECN. OrderFlow.

SuperDOT

The yield for a stock as it is listed on the stock pages of a newspaper is the: capital gains yield. total return percentage. yield-to-maturity. dividend yield. rate of growth.

dividend yield.

Many of the smaller orders sent to the floor of the NYSE are: handled by the floor traders. executed by the runners. electronically transmitted to the specialists. executed on an ECN. executed in the primary market.

electronically transmitted to the specialists.

If shareholders are granted a preemptive right they will be: given the choice of receiving dividends in cash or in additional shares of stock. paid dividends prior to the preferred shareholders during the preemptive period. granted shares that receive additional voting privileges. able to determine who the candidates should be for any open seats on the board. given the first right to purchase any new shares of stock that are issued.

given the first right to purchase any new shares of stock that are issued.