Finance 3000 Chapter 8

An agent who arranges a transaction between a buyer and a seller of equity securities is called a: A. broker. B. floor trader. C. capitalist. D. principal. E. dealer.

A. broker.

An individual on the floor of the NYSE who owns a trading license and buys and sells for his or her personal account is called a: A. floor trader. B. exchange customer. C. specialist. D. floor broker. E. market maker.

A. floor trader.

Which one of the following statements is correct concerning the two-stage dividend growth model? A. G1 cannot be negative. B. Pt = Dt/R. C. G1 must be greater than G2. D. G1 can be greater than R. E. R must be less than G1 but greater than G2.

D. G1 can be greater than R.

Which one of the following statements related to corporate dividends is correct? A. Dividends are nontaxable income to shareholders. B. Dividends reduce the taxable income of the corporation. C. The Chief Executive Officer of a corporation is responsible for declaring dividends. D. The Chief Financial Officer of a corporation determines the amount of dividend to be paid. E. Corporate shareholders may receive a tax break on a portion of their dividend income.

E. Corporate shareholders may receive a tax break on a portion of their dividend income.

The person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a(n): A. floor trader. B. dealer. C. specialist. D. executor. E. commission broker.

E. commission broker.

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings? A. dual class B. cumulative C. non-cumulative D. preferred E. common

E. common

Which one of the following statements applies to NASDAQ? A. a partner with the London exchange B. exchange floor is located in Chicago C. single market maker for each listed security D. broker's market E. comprised of three separate markets

E. comprised of three separate markets

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called? A. altering B. cumulative voting C. straight voting D. indenture agreement E. voting by proxy

E. voting by proxy

Which one of the following is computed by dividing next year's annual dividend by the current stock price? A. yield to maturity B. total yield C. dividend yield D. capital gains yield E. growth rate

C. dividend yield

A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a: A. floor trader. B. floor post. C. specialist. D. floor broker. E. commission broker.

C. specialist.

Which one of the following is an underlying assumption of the dividend growth model? A. A stock has the same value to every investor. B. A stock's value is equal to the discounted present value of the future cash flows which it generates. C. A stock's value changes in direct relation to the required return. D. Stocks that pay the same annual dividend have equal market values. E. The dividend growth rate is inversely related to a stock's market price.

B. A stock's value is equal to the discounted present value of the future cash flows which it generates.

What is the model called that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate? A. zero growth B. dividend growth C. capital pricing D. earnings capitalization E. discounted dividend

B. dividend growth

The owner of one of the 1,366 trading licenses for the NYSE is called a: A. broker. B. member. C. agent. D. specialist. E. dealer.

B. member.

Which one of the following statements related to the NYSE is correct? A. Commission brokers work on behalf of brokerage firm clients. B. Shareholders of NYSE Group, Inc. own "seats" on the exchange. C. Specialists buy at the asked price. D. The NYSE is primarily a dealer's market. E. Floor brokers earn income in the form of a bid-ask spread.

A. Commission brokers work on behalf of brokerage firm clients.

Which one of the following statements is correct? A. The capital gains yield is the annual rate of change in a stock's price. B. Preferred stocks have constant growth dividends. C. A constant dividend stock cannot be valued using the dividend growth model. D. The dividend growth model can be used to compute the current value of any stock. E. An increase in the required return will decrease the capital gains yield.

A. The capital gains yield is the annual rate of change in a stock's price.

What are the distributions to shareholders by a corporation called? A. retained earnings B. net income C. dividends D. capital payments E. diluted profits

C. dividends

A floor broker on the NYSE does which one of the following? A. supervises the commission brokers for a financial firm B. trades for his or her personal inventory C. executes orders on behalf of a commission broker D. maintains an inventory and takes the role of a specialist E. is charged with maintaining a liquid, orderly market

C. executes orders on behalf of a commission broker

The stream of customer orders coming in to the NYSE trading floor is called the: A. paper trail. B. trading volume. C. order flow. D. bid-ask spread. E. commission trail.

C. order flow.

Which one of the following transactions occurs in the primary market? A. purchase of 500 shares of GE stock from a current shareholder B. gift of 100 shares of stock to a charitable organization C. gift of 200 shares of stock by a mother to her daughter D. a purchase of newly issued stock from AT&T E. IBM's purchase of GE stock

D. a purchase of newly issued stock from AT&T

Which one of the following is the rate at which a stock's price is expected to appreciate? A. current yield B. total return C. dividend yield D. capital gains yield E. coupon rate

D. capital gains yield

Supernormal growth is a growth rate that: A. is both positive and follows a year or more of negative growth. B. exceeds a firm's previous year's rate of growth. C. is generally constant for an infinite period of time. D. is unsustainable over the long term. E. applies to a single, abnormal year.

D. is unsustainable over the long term.

The secondary market is best defined by which one of the following? A. market in which subordinated shares are issued and resold B. market conducted solely by brokers C. market dominated by dealers D. market where outstanding shares of stock are resold E. market where warrants are offered and sold

D. market where outstanding shares of stock are resold

Which one of the following statements currently applies to a NYSE broker? A. owns a "seat" on the exchange B. buys at the bid price C. remains at his or her specified post D. matches customer buy and sell orders E. trades for his or her personal account

D. matches customer buy and sell orders

Which one of these statements related to preferred stock is correct? A. Preferred shareholders normally receive one vote per share of stock owned. B. Preferred shareholders determine the outcome of any election that involves a proxy fight. C. Preferred shareholders are considered to be the residual owners of a corporation. D. Preferred stock normally has a stated liquidating value of $1,000 per share. E. Cumulative preferred shares are more valuable than comparable non-cumulative shares.

E. Cumulative preferred shares are more valuable than comparable non-cumulative shares.

An agent who maintains an inventory from which he or she buys and sells securities is called a: A. broker. B. trader. C. capitalist. D. principal. E. dealer.

E. dealer.

Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities? A. senior bond B. debenture C. warrant D. common stock E. preferred stock

E. preferred stock

Who owns the NYSE? A. NYSE members B. specialists C. dealers D. floor brokers E. shareholders

E. shareholders