Chapter 8 Finance
National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past fifteen years and is expected to continue paying a dollar a share long into the future.
priced the same as a $1 perpetuity.
Chemical Mines has 5,000 shareholders and is preparing to elect two new board members. You do not own enough shares to personally control the elections but are determined to oust the current leadership. Likewise, no other single shareholder owns sufficient shares to personally control the outcome of the election. Which one of the following is the most likely outcome of this situation given that some shareholders are happy with the existing management?
proxy fight for control of the board
Who owns the NYSE?
shareholders
A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a:
specialist
You want to be on the board of directors of Wisely Foods. Since you are the only shareholder that will vote for you, you will need to own more than half of the outstanding shares of stock if you are to be elected to the board. What is the type of voting called that requires this level of stock ownership to be successfully elected under these conditions?
straight
Which one of the following statements is correct?
the capital gains yield is the annual rate of change in a stock's price
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?
voting by proxy
You own one share of a cumulative preferred stock which pays quarterly dividends. The firm has recently suffered some financial setbacks and has failed to pay the last two dividends. However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter. As a preferred shareholder, you should expect to receive the equivalent of ____ quarter(s) of dividends when the next dividend is paid.
3
The Blue Marlin is owned by a group of 5 shareholders who all vote independently and who all want personal control over the firm. What is the minimum percentage of the outstanding shares one of these shareholders must own if he or she is to gain personal control over this firm given that the firm uses straight voting?
50 percent plus one vote
Which one of the following is an underlying assumption of the dividend growth model?
A stock's value is equal to the discounted present value of the future cash flows which it generates.
Which one of the following statements related to the NYSE is correct?
Commission brokers work on behalf of brokerage firm clients
Which one of the following statements related to corporate dividends is correct?
Corporate shareholders may receive a tax break on a portion of their dividend income
Which one of these statements related to preferred stock is correct?
Cumulative preferred shares are more valuable than comparable non-cumulative shares
An increase in which of the following will increase the current value of a stock according to the dividend growth model? I. dividend amount II. number of future dividends, provided the current number is less than infinite III. discount rate IV. dividend growth rate
Dividend amount, number of future dividends, provided the current number is less than infinite, and dividend growth rate
Which one of the following statements is correct concerning the two-stage dividend growth model?
G1 must be greater than R
Jen owns 30 shares of stock in Delta Fashions and wants to win a seat on the board of directors. The firm has a total of 100 shares of stock outstanding. Each share receives one vote. Presently, the company is voting to elect three new directors. Which one of the following statements must be true given this information?
If cumulative voting applies, Jen is assured one seat on the board.
Which of the following features do preferred shareholders and bondholders frequently have in common? I. lack of voting rights II. conversion option into common stock III. annuity payments IV. fixed liquidation value
Lack of voting rights, conversion option into common stock, annuity payments, and fixed liquidation value (I, II, III, IV)
Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:
Must still declare each dividend before it becomes an actual company liability
You are an accountant and have been analyzing the financial statements of Euro Place Markets, which is a foreign retailer. While the firm's financials are not prepared according to GAAP, you have still been able to understand the firm's accounting practices and feel that this firm has a bright future. On which one of the following U.S. markets, if any, might you be able to purchase shares in this firm?
Pink Sheets
You are the sole shareholder of a small corporation. Presently, you wish to diversify your holdings and thus want to sell a portion of your shares but do not want to incur the costs associated with SEC filings. Which one of the following markets, if any, might be conducive to this sale?
Pink Sheets
Callander Enterprises stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will occur in which one of the following markets?
Primary
Which of the following apply to a specialist who trades on the floor of the NYSE? I. provides liquidity for an individual security II. partially being replaced by SuperDOT III. pays an annual fee for a trading license IV. acts as a dealer
Provides liquidity for an individual security, pays an annual fee for a trading license, and acts as a dealer (I, III, IV only)
Hardy Lumber has a capital structure which includes bonds, preferred stock, and common stock. Which of the following rights have most likely been granted to the preferred shareholders? I. right to share in company profits prior to other shareholders II. right to elect the corporate directors III. right to vote on proposed mergers IV. right to all residual income after the common dividends have been paid
Right to share in company profits prior to other shareholders (I only)
You own 600 shares of a NASDAQ listed stock that you wish to sell. Which of the following are options available to you for this purpose? I. sell the shares to a dealer at the dealer's bid price II. sell directly to another individual via an ECN III. offer the shares yourself on NASDAQ via an ECN IV. have a broker offer the shares for sale on the NYSE
Sell the shares to a dealer at the dealer's bid price, sell directly to another individual via an ECN, and offer the shares yourself on NASDAQ via an ECN (I, II, III only)
Which one of the following is the electronic system used by the NYSE for directly transmitting orders to specialists?
SuperDOT
Winston Co. has a dividend-paying stock with a total return for the year of -6.5 percent. Which one of the following must be true?
The stock has a negative capital gains yield
Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:
a decrease in all stock values
Which one of the following transactions occurs in the primary market?
a purchase of newly issued stock from AT&T
An ECN is best described as:
a website that allows individual investors to trade directly with one another.
The dividend growth model: I. assumes that dividends increase at a constant rate forever. II. can be used to compute a stock price at any point in time. III. can be used to value zero-growth stocks. IV. requires the growth rate to be less than the required return.
assumes that dividends increase at a constant rate forever, can be used to compute a stock price at any point in time, can be used to value zero-growth stocks, requires the growth rate to be less than the require return
An agent who arranges a transaction between a buyer and a seller of equity securities is called a:
broker
High Country Builders currently pays an annual dividend of $1.35 and plans on increasing that amount by 2.5 percent each year. Valley High Builders currently pays an annual dividend of $1.20 and plans on increasing its dividend by 3 percent annually. Given this information, you know for certain that the stock of High Country Builders' has a higher ______ than the stock of Valley High Builders.
capital gains yield
Which one of following is the rate at which a stock's price is expected to appreciate?
capital gains yield
The person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a(n):
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?
common
Which one of the following statements applies to NASDAQ?
comprised of three separate markets
A company has two open seats, Seat A and Seat B, on its board of directors. There are 6 candidates vying for these 2 positions. There will be a single election to determine the winner of both open seats. As the owner of 100 shares of stock, you will receive one vote per share for each open seat. You decide to cast all 200 of your votes for a single candidate. What is this type of voting called?
cumulative
An agent who maintains an inventory from which he or she buys and sells securities is called a:
dealer
Which one of the following rights is never directly granted to all shareholders of a publicly-held corporation?
determining the amount of the dividend to be paid per share
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?
dividend growth
Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?
dividend payments which increase by 10 percent per year for 5 years followed by dividends which increase by 3 percent annually thereafter
Which one of the following is computed by dividing next year's annual dividend by the current stock price?
dividend yield
What are the distributions to shareholders by a corporation called?
dividends
A floor broker on the NYSE does which one of the following?
executes orders on behalf of a commission broker
Which one of the following players on the floor of the NYSE can be likened to part-time help because they are called to duty only when others are fully employed?
floor 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:
floor trader
Which one of the following represents the capital gains yield as used in the dividend growth model?
g
The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will:
grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely
Supernormal growth is a growth rate that:
is unsustainable over the long term
The secondary market is best defined by which one of the following?
market where outstanding shares of stock are resold
Which one of the following statements currently applies to a NYSE broker?
matches customer buy and sell orders
The owner of one of the 1,366 trading licenses for the NYSE is called a:
member
The stream of customer orders coming in to the NYSE trading floor is called the:
order flow
A securities market primarily comprised of dealers who buy and sell for their own inventories is referred to which type of market?
over the counter
The counter area on the floor of the NYSE where a specialist operates is called a:
post
Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities?
preferred stock