finance 8

13. 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

18. 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

31. 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

48. 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

1. 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 growthB. dividend growthC. capital pricingD. earnings capitalizationE. discounted dividend

B

14. 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

19. Which one of the following is the electronic system used by the NYSE for directly transmitting orders to specialists? A. OTCDOTB. SuperDOTC. InstinetD. InternetE. Floornet

B

28. 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

34. 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? A. The dividend must be constant.B. The stock has a negative capital gains yield.C. The dividend yield must be zero.D. The required rate of return for this stock increased over the year.E. The firm is experiencing supernormal growth.

B

5. 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? A. democraticB. cumulativeC. straightD. deferredE. proxy

B

16. 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

17. A floor broker on the NYSE does which one of the following? A. supervises the commission brokers for a financial firmB. trades for his or her personal inventoryC. executes orders on behalf of a commission brokerD. maintains an inventory and takes the role of a specialistE. is charged with maintaining a liquid, orderly market

C

2. Which one of the following is computed by dividing next year's annual dividend by the current stock price? A. yield to maturityB. total yieldC. dividend yieldD. capital gains yieldE. growth rate

C

20. 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

22. A securities market primarily comprised of dealers who buy and sell for their own inventories is referred to which type of market? A. auctionB. privateC. over-the-counterD. regionalE. electronic network

C

24. 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. Given this, one share of the firm's stock is: A. basically worthless as it offers no growth potential.B. equal in value to the present value of $1 paid one year from today.C. priced the same as a $1 perpetuity.D. valued at an assumed growth rate of one percent.E. worth $1 a share in the current market.

C

33. Which one of the following represents the capital gains yield as used in the dividend growth model? A. D1B. D1/P0C. P0D. gE. g/P0

D

26. 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. A. market priceB. dividend yieldC. capital gains yieldD. total returnE. The answer cannot be determined based on the information provided.

C

29. 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. an increase in all stock values.B. all stock values to remain constant.C. a decrease in all stock values.D. dividend-paying stocks to maintain a constant price while non-dividend paying stocks decrease in value.E. dividend-paying stocks to increase in price while non-dividend paying stocks decrease in value.

C

6. 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? A. democraticB. cumulativeC. straightD. deferredE. proxy

C

8. What are the distributions to shareholders by a corporation called? A. retained earningsB. net incomeC. dividendsD. capital paymentsE. diluted profits

C

11. The secondary market is best defined by which one of the following? A. market in which subordinated shares are issued and resoldB. market conducted solely by brokersC. market dominated by dealersD. market where outstanding shares of stock are resoldE. market where warrants are offered and sold

D

21. The counter area on the floor of the NYSE where a specialist operates is called a: A. pit.B. hot spot.C. seat.D. post.E. DOT.

D

23. An ECN is best described as: A. an electronic network which transmits orders directly to the floor of the NYSE.B. the network used in the primary market for selling newly issued shares.C. the international trading network of the NYSE.D. a website that allows individual investors to trade directly with one another.E. a computerized network used by independent brokers.

D

25. An increase in which of the following will increase the current value of a stock according to the dividend growth model?I. dividend amountII. number of future dividends, provided the current number is less than infiniteIII. discount rateIV. dividend growth rate A. I and II onlyB. III and IV onlyC. I, II, and III onlyD. I, II, and IV onlyE. I, II, III, and IV

D

3. Which one of following is the rate at which a stock's price is expected to appreciate? A. current yieldB. total returnC. dividend yieldD. capital gains yieldE. coupon rate

D

30. 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

32. 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

35. The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will: A. pay an increasing dividend for a period of time and then cease paying dividends altogether.B. increase the dividend amount every other year.C. pay a constant dividend for the first two quarters of each year and then increase the dividend the last two quarters of each year.D. grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely.E. pay increasing dividends for a fixed period of time, cease paying dividends for a period of time, and then commence paying increasing dividends for an indefinite period of time.

D

37. Which one of the following rights is never directly granted to all shareholders of a publicly-held corporation? A. electing the board of directorsB. receiving a distribution of company profitsC. voting either for or against a proposed merger or acquisitionD. determining the amount of the dividend to be paid per shareE. having first chance to purchase any new equity shares that may be offered

D

38. 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? A. Regardless of the voting procedure, Jen does not own enough shares to gain a seat on the board.B. If straight voting applies, Jen is assured a seat on the board.C. If straight voting applies, Jen can control all of the open seats.D. If cumulative voting applies, Jen is assured one seat on the board.E. If cumulative voting applies, Jen can control all of the open seats.

D

49. Which one of the following transactions occurs in the primary market? A. purchase of 500 shares of GE stock from a current shareholderB. gift of 100 shares of stock to a charitable organizationC. gift of 200 shares of stock by a mother to her daughterD. a purchase of newly issued stock from AT&TE. IBM's purchase of GE stock

D

50. Which one of the following statements currently applies to a NYSE broker? A. owns a "seat" on the exchangeB. buys at the bid priceC. remains at his or her specified postD. matches customer buy and sell ordersE. trades for his or her personal account

D

52. 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? A. floor traderB. specialistC. dealerD. floor brokerE. commission broker

D

10. 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? A. privateB. auctionC. exchange floorD. secondaryE. primary

E

12. 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

15. 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

27. 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. A. I and III onlyB. II and IV onlyC. I, III, and IV onlyD. I, II, and IV onlyE. I, II, III, and IV

E

36. 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? A. no dividends for 5 years, then increasing dividends foreverB. $1 per share annual dividend for 2 years, then $1.25 annual dividends foreverC. decreasing dividends for 6 years followed by one final liquidating dividend paymentD. dividends payments which increase by 2, 3, and 4 percent respectively for 3 years followed by a constant dividend thereafterE. dividend payments which increase by 10 percent per year for 5 years followed by dividends which increase by 3 percent annually thereafter

E

4. 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 classB. cumulativeC. non-cumulativeD. preferredE. common

E

51. Who owns the NYSE? A. NYSE membersB. specialistsC. dealersD. floor brokersE. shareholders

E

53. Which one of the following statements applies to NASDAQ? A. a partner with the London exchangeB. exchange floor is located in ChicagoC. single market maker for each listed securityD. broker's marketE. comprised of three separate markets

E

7. 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. alteringB. cumulative votingC. straight votingD. indenture agreementE. voting by proxy

E

9. 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 bondB. debentureC. warrantD. common stockE. preferred stock

E