FIN Ch 8

For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed. True or False?

False

Preferred stock has preference over common stock in the _____. A) payment of dividends B) distribution of corporate assets C) portfolios of individual investors D) number of votes given

payment of dividends distribution of corporate assets

A ________ is the grant of authority by a shareholder to someone else to vote his or her shares.

proxy

The trading of existing shares occurs in the ______ market. A) secondary B) tertiary C) primary D) federal

secondary

When voting for the board of directors, the number of votes a shareholder is entitled to is usually _________ vote per share held.

one

Which one of the following is true about dividend growth patterns? A) Dividends always grow at a constant rate. B) Dividends always grow at a differential rate. C) Dividends may grow at a constant rate. D) Dividends never grow.

Dividends may grow at a constant rate.

Dusty Corporation has an issue of preferred stock that pays a dividend of 7 percent of its state value, which is $100. Which of the following would be a commonly used name for that preferred stock? A) $7 preferred B) $100 preferred C) 7% preferred D) Preferred stock that pays 7% of its stated value.

$7 preferred

Preferred shares have a stated liquidating value, typically $_____ per share. A) 50 B) 1 C) 1,000 D) 100

100

Dealer

A dealer maintains an inventory of stocks and buys and sells those stocks.

Straight Board Voting

A procedure in which a shareholder may cast all votes for each member of the board of directors.

What information do we need to determine the value of stock using the zero-growth model? A) Capital gain amount B) Annual dividend amount C) Discount rate D) Future stock price

Annual dividend amount Discount rate

Member

As of 2006, a member is the owner of a trading license on the NYSE.

Which of the following are reasons why it is more difficult to value common stock than it is to value bonds? A) Common stock cash flows are not known in advance B) All bond and stock cash flows are guaranteed to be paid. C) The life of a common stock is essentially forever. D) The rate of return required by the market is not easily observed.

Common stock cash flows are not known in advance The life of a common stock is essentially forever. The rate of return required by the market is not easily observed.

NASDAQ has which of these features? A) Computer network of securities dealers B) Multiple market maker system C) Physical trading floor D) Single DMM system

Computer network of securities dealers Multiple market maker system

Suppose Bob owns 20 shares and Vikki owns 30 shares in Good Company, and there are five members of the board of directors. Under which voting arrangement can Bob assure himself of a board member that represents his interests? A) Cumulative voting B) Minority voting C) Straight

Cumulative voting

Stock price reporting has increasingly moved from traditional print media to the _________ in recent years.

Internet

Supplemental Liquidity Providers (SLPs)

Investment firms that are active participants in stocks assigned to them. Their job is to make a one-sided market (i.e., offering to either buy or sell). They trade purely for their own accounts.

Which of the following are features of common stock? A) It receives dividends every quarter. B) It has no special preference in receiving dividends. C) It generally has voting rights. D) It has no special preference in bankruptcy. E) It receives interest semi-annually.

It has no special preference in receiving dividends. It generally has voting rights. It has no special preference in bankruptcy.

Floor Broker

NYSE members who execute customer buy and sell orders.

Which of the following occurs in the primary market? A) Newly-issued stocks are initially sold B) Outstanding shares are resold C) Issuers repurchase shares D) Shareholders gift shares to charities

Newly-issued stocks are initially sold

WinWin Corporation has five board members, and each shareholder gets one vote per share. The company uses a straight board voting procedure. How does this arrangement affect minority shareholders? A) Corporations always have one board member designated to protect the interests of minority shareholders. B) Minority shareholders don't vote in such an arrangement. C) No minority shareholder would have enough votes to win any seat on the board. D) Each minority shareholder would have one preferred board member.

No minority shareholder would have enough votes to win any seat on the board.

The formula for valuing a constant growth stock is _____. A) P0 = D1/(R − g) B) P = D1 − g/R C) P = D1/(R − g)2 D) R = P − D1/g

P0 = D1/(R − g)

Preferred Stock

Stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting rights.

Which of the following entities declares a dividend? A) CFO B) The management of the company C) The board of directors D) Existing shareholders

The board of directors

A person who brings buyers and sellers together is called a(n) ______. A) lawyer B) investor C) broker D) dealer

broker

A zero-growth model for stock valuation is distinguished by a ____. A) zero stock price at Year 0 B) negative dividend growth rate C) constant dividend amount D) constant discount rate

constant dividend amount

An NYSE member who acts as a dealer in particular stocks is called a _______ market maker.

designated (DMM)

Common stock has no special preference either in receiving __________ or in bankruptcy.

dividends

An NYSE member who executes customer buy and sell orders is called a _______ broker.

floor

One common reason for having two classes of common stock with different voting rights is _____. A) it is easier for outside shareholders to maintain control of the company B) there are no companies that have more than one class of common stock. Only preferred stockholders have differential voting rights C) it is more convenient for outside shareholders if they don't need to vote D) it is easier for insiders such as founding families to maintain control of the companyit is easier for insiders such as founding families to maintain control of the company

it is easier for insiders such as founding families to maintain control of the company

One reason corporations use staggered boards is that _____. A) it attracts potential acquirers B) all board members are elected at the same time, so the election process works more smoothly C) it makes takeover attempts less likely to be successful D) it makes it easier for minority shareholders to elect a director to represent them

it makes takeover attempts less likely to be successful

When applying two-stage growth, in the second stage, g2 _____. A) must be twice as large as R B) cannot be less than R C) must be less than R D) must be equal to R

must be less than R

When assuming nonconstant growth in dividends, to avoid the problem of having to forecast and discount an infinite number of dividends, we must require that the dividends _____. A) start growing at a constant rate sometime in the future B) grow at the exact growth rate of sales forever C) grow at different rates every year forever D) always revert to zero after the third year

start growing at a constant rate sometime in the future

With _________ voting, the directors are elected one at a time and the only way to guarantee a seat is to own 50 percent plus one share.

straight

When the stock being valued does not pay dividends, A) the dividend growth model can still be used. B) the dividend growth model can not be used.

the dividend growth model can still be used.

The idea for _______ -stage growth is that the dividend will grow at a rate of g1 for t years and then grow at a rate of g2 thereafter, forever.

two

Three special case patterns of dividend growth include _____.

zero growth nonconstant growth constant growth

Cumulative Voting

Each shareholder may distribute votes however he or she wishes. If there are four seats on the board and the shareholder owns 20 shares, he or she can cast 80 votes for one board member.

Cumulative voting means board members are elected one at a time, with each shareholder casting his or her allotted votes for each seat on the board. True or False?

False

It can be advantageous to have a staggered board because it provides "institutional memory." True or False?

True

With more than one class of common stock, it is easier for insiders such as founding families to maintain control of the company. True or False?

True

A benchmark PE ratio can be determined using: A) the constant-growth model B) a company's own historical PEs C) the PEs of similar companies D) Bank of Canada estimates

a company's own historical PEs the PEs of similar companies

In a ___________ board, only a fraction of the directorships are up for election at any one time.

staggered