finance chapter 7 practice questions

An individual who executes buy and sell orders on the floor of an exchange for a fee is called a: A. floor broker. B. specialist. C. floor trader. D. proxy. E. flow specialist.

a

Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15 years. Yesterday, the firm announced the dividend will increase next year by 10 percent and will stay at the level through year three, after which time the dividends will increase by 2 percent annually. The required return on this stock is 12 percent. What is the current value per share? A. $25.51 B. $26.08 C. $24.57 D. $26.02 E. $26.84

a

Business Services, Inc. is expected to pay its first annual dividend of $0.80 per share three years from now. Starting in year six, the company is expected to start increasing the dividend by 2 percent per year. What is the value of this stock today at a required return of 12 percent? A. $6.16 B. $6.47 C. $6.63 D. $7.22 E. $7.47

a

Gamma Corp. is expected to pay the following dividends over the next four years: $5, $12, $18, and $1.80. Afterwards, the company pledges to maintain a constant 4 percent growth rate in dividends, forever. If the required return on the stock is 14 percent, what is the current share price? A. $37.92 B. $41.06 C. $43.18 D. $46.09 E. $49.31

a

Granger Corp. stock currently sells for $48.29 per share. The market requires a 13 percent return on the firm's stock. If the company maintains a constant 5.5 percent growth rate in dividends, what was the most recent annual dividend per share paid on the stock? A. $3.43 B. $3.57 C. $3.90 D. $4.15 E. $4.36

a

Lamey Headstones increases its annual dividend by 1.5 percent annually. The stock sells for $28.40 a share at a required return of 14 percent. What is the amount of the last dividend this company paid? A. $3.50 B. $3.55 C. $3.60 D. $3.65 E. $3.70

a

New Gadgets is growing at a very fast pace. As a result, the company expects to pay annual dividends of $0.55, 0.80, and $1.10 per share over the next three years, respectively. After that, the dividend is projected to increase by 5 percent annually. The last annual dividend the firm paid was $0.40 a share. What is the current value of this stock if the required return is 16 percent? A. $8.50 B. $9.67 C. $10.46 D. $12.23 E. $12.49

a

Which one of the following players on the floor of the NYSE is obligated to maintain a fair, orderly market for a limited number of securities? A. Specialist B. Floor trader C. $2 broker D. Commission broker E. Floor broker

a

A firm has two open positions on its board of directors. How many shares do you need to own to guarantee your own election to the board if the firm has 12,500 shares of stock outstanding and uses cumulative voting? Each share is granted one vote. A. 3,334 shares B. 4,168 shares C. 5,251 shares D. 5,501 shares E. 6,251 shares

b

An agent who buys and sells securities from inventory is called a: A. floor trader. B. dealer. C. commission broker. D. broker. E. floor broker.

b

Better Plastics is a mature manufacturing firm. The company just paid a $4 annual dividend, but management expects to reduce the payout by 3 percent per year, indefinitely. If you require a 12 percent return on this stock, what will you pay for a share today? A. $23.09 B. $25.87 C. $27.14 D. $28.56 E. $30.02

b

Investors receive a total return of 13.7 percent on the common stock of Dexter International. The stock is selling for $41.68 a share. What is the dividend growth rate if the company plans to pay an annual dividend of $2.10 a share next year? A. 7.42 percent B. 8.66 percent C. 10.75 percent D. 11.60 percent E. 13.70 percent

b

Kate owns a stock with a market price of $31 per share. This stock pays a constant annual dividend of $0.60 per share. If the price of the stock suddenly increases to $36 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. A. I only B. II only C. III only D. I and III only E. II and IV only

b

Keller Metals common stock is selling for $36 a share and has a dividend yield of 3.2 percent. What is the dividend amount? A. $0.32 B. $1.15 C. $3.49 D. $11.25 E. $11.52

b

Klaus Toys just paid its annual dividend of $1.40. The required return is 16 percent and the dividend growth rate is 2 percent. What is the expected value of this stock five years from now? A. $11.04 B. $11.26 C. $11.67 D. $12.41 E. $12.58

b

River Rock, Inc. just paid an annual dividend of $2.80. The company has increased its dividend by 2.5 percent a year for the past ten years and expects to continue doing so. What will a share of this stock be worth six years from now if the required return is 16 percent? A. $23.60 B. $24.65 C. $25.08 D. $25.50 E. $26.90

b

Taylor Tools is a young start-up company. No dividends will be paid on the stock over the next 7 years because the firm needs to plow back its earnings to fuel growth. The company will then pay a $9 per share dividend in year 8 and will increase the dividend by 4 percent per year thereafter. If the required return on this stock is 12 percent, what is the current share price? A. $47.76 B. $50.89 C. $64.30 D. $92.08 E. $112.50

b

A stock has a market price of $46.10 and pays a $2.40 annual dividend. What is the dividend yield? A. 4.13 percent B. 4.84 percent C. 5.21 percent D. 5.52 percent E. 5.78 percent

c

Auto Transmissions is expected to pay annual dividends of $1.90 and $2.10 over the next two years, respectively. After that, the company expects to pay a constant dividend of $2.30 a share. What is the value of this stock at a required return of 15 percent? A. $13.67 B. $14.21 C. $14.83 D. $15.08 E. $15.60

c

Many of the smaller sell orders sent to the floor of the NYSE are: A. handled by the floor traders. B. purchased by the commission brokers. C. electronically transmitted to the specialists. D. executed on an ECN. E. executed in the primary market.

c

Shoreline Foods pays a constant annual dividend of $1.60 a share and currently sells for $28.50 a share. What is the rate of return? A. 4.56 percent B. 5.39 percent C. 5.61 percent D. 6.63 percent E. 6.91 percent

c

The Market Place recently announced that it will pay its first annual dividend two years from today. The first dividend will be $0.50 a share with that amount doubling each year for the following two years. After that, the dividend is expected to increase by 4 percent annually. What is the value of this stock today if the required return is 15 percent? A. $11.68 B. $12.47 C. $12.99 D. $14.02 E. $14.94

c

The NYSE: A. presently conducts all of its trading through SuperDOT. B. is a dealer market. C. is in the business of attracting order flow. D. is solely a primary market. E. is based on a multiple market maker system.

c

The common stock of Green Garden Flowers is selling for $24 a share. The company pays a constant annual dividend and has a total return of 3.8 percent. What is the amount of the dividend? A. $0.38 B. $0.76 C. $0.91 D. $1.38 E. $1.54

c

To be a member of the NYSE, you must: A. be a primary dealer. B. buy a seat. C. own a trading license. D. be registered as a floor trader. E. be a specialist.

c

Webster Industrial Products has both common and noncumulative preferred stock outstanding. The dividends on these stocks are $1.10 per quarter per share of common and $2.50 per quarter per share of preferred. The company has not paid any dividends for the past two quarters but is expected to pay dividends on both the common and the preferred stock next quarter. What is the minimum amount the firm must pay per share to its preferred stockholders next quarter if it plans to pay a common dividend? A. $0 B. $1.10 C. $2.50 D. $5.00 E. $7.50

c

What is the market called that allows shareholders to resell their shares to other investors? A. Primary B. Proxy C. Secondary D. Inside E. Initial

c

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

d

Given the following partial stock quote, what was the closing price on the previous trading day if the firm's earnings per share are $1.85? Div Yld%= 3.2% Close Price = $16.93 Net chng = -.16 A. $16.71 B. $16.77 C. $16.89 D. $17.09 E. $17.40

d

Jensen Shipping has four open seats on its board of directors. How many shares will a shareholder need to control to ensure that his or her candidate is elected to the board given the fact that the firm uses straight voting? Assume one share equals one vote. A. 20 percent of the shares plus one vote B. 25 percent of the shares plus one vote C. 1/3 of the shares plus one vote D. 50 percent of the shares plus one vote E. 51 percent of the shares plus one vote

d

Kate could not attend the last shareholders meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which one of the following terms is used to describe the method by which Kate's shares were voted? A. Straight B. Cumulative C. Consent-form D. Proxy E. In absentia

d

The common stock of Tasty Treats is valued at $10.80 a share. The company increases its dividend by 8 percent annually and expects its next dividend to be $0.20 per share. What is the total rate of return on this stock? A. 8.64 percent B. 9.12 percent C. 9.40 percent D. 9.85 percent E. 10.64 percent

d

The more actively traded large companies that are listed on NASDAQ are traded in which one of the NASDAQ markets? A. National B. Capital C. Regional D. Global Select E. Global

d

A preferred stock sells for $48.20 a share and has a market return of 15.65 percent. What is the dividend amount? A. $6.93 B. $6.80 C. $7.25 D. $7.42 E. $7.54

e

The price of a stock at year 4 can be expressed as: A. D0 / (R + G4). B. D0 × (1 + R)5. C. D1 × (1 + R)5. D. D4/(R-g). E. D5/(R-g).

e

The stock price of Samuelson, Inc., is $71. Investors require a 15 percent rate of return on similar stocks. If the company plans to pay a dividend of $4.20 next year, what growth rate is expected for the company's stock price? A. 6.01 percent B. 7.56 percent C. 7.78 percent D. 8.24 percent E. 9.08 percent

e

Which one of the following will increase the current value of a stock? A. Decrease in the dividend growth rate B. Increase in the required return C. Increase in the market rate of return D. Decrease in the expected dividend for next year E. Increase in the capital gains yield

e

Given the following partial stock quote, what is the expected annual dividend? Div Yld% = 2.6% PE Ratio = 9.5 Close Price = $38.15 Net Chg = -.08 A. $0.99 B. $1.08 C. $1.13 D. $1.28 E. $1.33

a

Miller's Hardware has 185,000 shares of stock outstanding with a current market value of $27 a share. You own 38,000 of those shares. Next month, the election will be held to select four 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? A. $0 B. $28,512 C. $34,047 D. $222,777 E. $311,027

a

Plastics, Inc. will pay an annual dividend of $1.85 next year. The company just announced that future dividends will be increasing by 2.25 percent annually. How much are you willing to pay for one share of this stock if you require a 16 percent return? A. $13.45 B. $13.61 C. $13.76 D. $14.02 E. $14.45

a

Pluto, Inc., has an issue of preferred stock outstanding that pays a $4.50 dividend every year, in perpetuity. If this issue currently sells for $82.30 per share, what is the required return? A. 5.47 percent B. 6.89 percent C. 7.70 percent D. 8.23 percent E. 8.98 percent

a

The Cart Wheel plans to pay an annual dividend of $1.20 per share next year, $1.00 per share a year for the following two years, and then cease paying dividends altogether. How much is one share of this stock worth to you today if you require a 17 percent rate of return? A. $2.38 B. $2.43 C. $2.56 D. $2.60 E. $2.64

a

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

a

There are four open positions on the board of directors of Double Tree Restaurants. The company has 180,000 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? A. 36,001 shares B. 37,501 shares C. 38,501 shares D. 40,001 shares E. 42,001 shares

a

This morning, you purchased a stock that will pay an annual dividend of $1.90 per share next year. You require a 12 percent rate of return and the annual dividend increases at 3.5 percent annually. What will your capital gain be on this stock if you sell it three years from now? A. $2.43 B. $2.51 C. $2.63 D. $2.87 E. $2.92

a

Which one of the following statements is correct? A. Both preferred stock and corporate bonds can be callable. B. Both preferred stock and corporate bonds have a stated liquidation value of $1,000 each. C. Interest payments to bondholders as well as dividend payments to preferred shareholders are tax deductible expenses for the issuing firm. D. Bondholders generally receive a fixed payment while preferred shareholders receive a variable payment. E. Preferred shareholders receive preferential treatment over bondholders in a liquidation.

a

Which one of the following statements is correct? A. From a legal perspective, preferred stock is a form of corporate equity. B. All classes of stock must have equal voting rights per share. C. Common shareholders elect the corporate directors while the preferred shareholders vote on mergers and acquisitions. D. Dividends are tax-free income for individual investors. E. Shareholders prefer noncumulative dividends over cumulative dividends.

a

Aardvark, Inc. pays a constant annual dividend. At the end of trading on Wednesday, the price of its stock was $28. At the end of trading on the following day, the stock price was $27. As a result of the decline in the stock's price, the dividend yield _____ while the capital gains yield _____. A. remained constant; remained constant B. increased; remained constant C. increased; increased D. decreased; remained constant E. decreased; decreased

b

Blackwell Ink is losing significant market share and thus its managers have decided to decrease the firm's annual dividend. The last annual dividend was $0.90 a share but all future dividends will be decreased by 5 percent annually. What is a share of this stock worth today at a required return of 15 percent? A. $4.07 B. $4.28 C. $4.49 D. $4.72 E. $4.95

b

Central Staircase is offering preferred stock which is commonly referred to as 10-10 stock. This stock will pay an annual dividend of $10 a share starting 10 years from now. What is this stock worth to you today if you desire a 16 percent rate of return? A. $14.48 B. $16.43 C. $17.07 D. $17.84 E. $18.21

b

Given the following partial stock quote, what is the amount of the next annual dividend if yesterday's closing price was $32.60? Div Yld% = 3.4% PE Ratio = 12 Close price ? Net change = .12 A. $1.07 B. $1.11 C. $1.15 D. $1.19 E. $1.23

b

If a trade is made "in the crowd", the trade has occurred: A. between a broker and a specialist. B. between two brokers. C. electronically on NASDAQ. D. on SuperDOT. E. on an ECN.

b

Suppose you know that a company's stock currently sells for $65 per share and the required return on the stock is 14 percent. You also know that the total return on the stock is evenly divided between capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share? A. $3.67 B. $4.25 C. $4.64 D. $5.01 E. $5.28

b

The Pancake House pays a constant annual dividend of $1.25 per share. How much are you willing to pay for one share if you require a 15 percent rate of return? A. $7.86 B. $8.33 C. $10.87 D. $11.04 E. $11.38

b

The electronic system that transmits buy and sell orders directly to a specialist on the floor of the NYSE is called: A. NASDAQ. B. SuperDOT. C. TICKER. D. ECN. E. ORDFLOW.

b

There are two open seats on the board of directors. If two separate votes occur to elect the new directors, the firm is using a type of voting that is best described as _____ voting. A. simultaneous B. straight C. proxy D. cumulative E. sequential

b

Which one of the following features applies to NASDAQ but not the NYSE? A. Trading in the crowd B. Multiple market maker system C. SuperDot D. Broker market E. Physical trading floor

b

Which one of the following must equal zero if a firm pays a constant annual dividend? A. Dividend yield B. Capital gains yield C. Total return D. Market value per share E. Book value per share

b

Which one of the following parties on the NYSE floor post bid and asked prices? A. Floor traders B. Specialists C. Floor brokers D. Commission brokers E. Fee brokers

b

A firm 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 $3 a share. The last dividend paid was $1.00 a share. What is the current value of this stock if the required rate of return is 12 percent? A. $17.71 B. $18.97 C. $20.50 D. $21.08 E. $21.69

c

A specialist is a(n): A. employee who executes orders to buy and sell for clients of his or her brokerage firm. B. individual who trades on the floor of an exchange for his or her personal account. C. NYSE member who functions as a dealer for a limited number of securities. D. broker who buys and sells securities from a market maker. E. trader who only deals with primary offerings.

c

Companies can list their stock on which one of the following without having to meet listing requirements or filing financial statements with the SEC? A. NASDAQ Capital Market B. Over-the-Counter Bulletin Board C. Pink sheets D. NASDAQ Global Market E. NYSE

c

Dividends are best defined as: A. cash payments to shareholders. B. cash payments to either bondholders or shareholders. C. cash or stock payments to shareholders. D. cash or stock payments to either bondholders or shareholders. E. distributions of stock to current shareholders.

c

Dividends are which one of the following? A. Payable at the discretion of a firm's president B. Treated as a tax-deductible expense to the paying firm C. Paid out of aftertax profits D. Paid to holders of record as of the declaration date E. Only partially taxable to high-income individual shareholders

c

Donuts Delite just paid an annual dividend of $1.10 a share. The firm expects to increase this dividend by 8 percent per year the following 3 years and then decrease the dividend growth to 2 percent annually thereafter. Which one of the following is the correct computation of the dividend for year 7? A. ($1.10) (1.08 × 3) (1.02 × 4) B. ($1.10) (1.08 × 3) (1.02 × 3) C. ($1.10) (1.08)3 (1.02)4 D. ($1.10) (1.08)3 (1.02)3 E. ($1.10) (1.08)3 (1.02)2

c

Gleason, Inc. elects its board of directors on a staggered basis using cumulative voting. This implies that: A. if there are two open seats, then the candidate with the highest number of votes and the candidate with the lowest number of votes will be selected. B. the candidates for the open seats are voted for in individual elections. C. all open positions are filled with one round of voting, assuming there are no tie votes. D. shareholders can accumulate their votes over multiple years and cast all those votes in one election. E. the firm's entire board of directors is elected annually in one combined election.

c

Graphic Designs has 120,000 shares of cumulative preferred stock outstanding. Preferred shareholders are supposed to be paid $1.50 per quarter per share in dividends. However, the firm has encountered financial problems and has not paid any dividends for the past three quarters. How much will the firm have to pay per share of preferred next quarter if the firm also wishes to pay a common stock dividend? A. $3.00 B. $4.50 C. $6.00 D. $7.50 E. $9.00

c

Healthy Foods just paid its annual dividend of $1.45 a share. The firm recently announced that all future dividends will be increased by 2.8 percent annually. What is one share of this stock worth to you if you require a 14 percent rate of return? A. $12.56 B. $12.95 C. $13.31 D. $13.68 E. $14.07

c

Inside quotes are defined as the: A. bid and asked prices presented by NYSE specialists. B. last bid and asked price offered prior to the market close. C. lowest asked and highest bid offers. D. daily opening bid and asked quotes. E. last traded bid and asked prices.

c

Kathryn owns 18,700 shares of Global Importers. Her shares have a total market value of $787,270. In total, the firm has 65,000 shares outstanding. Each share is entitled to one vote under the straight voting policy of the firm. The next election is in four months at which time two directors are up for election. How much more must Kathryn invest in this firm to guarantee that she is elected to the board? A. $0 B. $513,361 C. $581,022 D. $647,280 E. $711,010

c

Last year, when the stock of Alpha Minerals was selling for $55 a share the dividend yield was 3.2 percent. Today, the stock is selling for $41 a share. What is the total return on this stock if the company maintains a constant dividend growth rate of 2.5 percent? A. 6.13 percent B. 6.58 percent C. 6.90 percent D. 7.47 percent E. 7.40 percent

c

Mary owns 100 shares of stock. Each share entitles her to one vote per open seat on the board of directors. Assume there are 3 open seats in the current election and Mary casts all 300 of her votes for a single candidate. What is the term used to describe this type of voting? A. Proxy B. Aggregate C. Cumulative D. Straight E. Condensed

c

On which one of the following dates do dividends become a liability of the issuer for accounting purposes? A. First day of the fiscal year in which the dividend is expected to be paid B. Twelve months prior to the expected dividend payment date C. On the declaration date D. On the date of record E. On the date of payment

c

The common stock of Mid-Towne Movers is selling for $33 a share and has a 9 percent rate of return. The growth rate of the dividends is 1 percent annually. What is the amount of the next annual dividend? A. $2.58 B. $2.61 C. $2.64 D. $2.67 E. $2.70

c

The dividend yield is defined as: A. the current annual cash dividend divided by the current market price per share. B. the current annual cash dividend divided by the current book value per share. C. next year's expected cash dividend divided by the current market price per share. D. next year's expected cash dividend divided by the current book value per share. E. next year's expected cash dividend divided by next year's expected market price per share.

c

The next dividend payment by Swenson, Inc., will be $1.80 per share. The dividends are anticipated to maintain a 5.5 percent growth rate, forever. If the stock currently sells for $48.50 per share, what is the required return? A. 8.20 percent B. 8.88 percent C. 9.21 percent D. 9.74 percent E. 10.02 percent

c

The owner of a trading license who trades on the floor of the NYSE for his or her personal account is called a(n): A. specialist. B. independent broker. C. floor trader. D. stand-alone agent. E. dealer.

c

The required return on a stock is equal to which one of the following if the dividend on the stock decreases by 1 percent per year? A. (P0/D1)-g B. (D1/P0)/g C. Dividend yield + capital gains yield D. Dividend yield - capital gains yield E. Dividend yield × capital gains yield

c

The specific location on the floor of an exchange where a particular security is traded is called a: A. box office. B. figure 6. C. specialist's post. D. trading booth. E. seat.

c

Western Beef stock is valued at $62.10 a share. The company pays a constant annual dividend of $4.40 per share. What is the total return on this stock? A. 6.62 percent B. 6.81 percent C. 7.09 percent D. 7.49 percent E. 7.82 percent

c

Which one of the following is a web site that enables Lester to sell his shares of ABC stock directly to Marti? A. SuperDOT B. POST C. ECN D. SEAT E. eNET

c

Which one of the following types of securities has no priority in a bankruptcy proceeding? A. Convertible bond B. Senior debt C. Common stock D. Preferred stock E. Straight bond

c

After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Marine Enterprises. Unfortunately, you will be the only individual voting for you. If Marine Enterprises has 350,000 shares outstanding and the stock currently sells for $52, how much will it cost you to buy a seat if the company uses straight voting? Assume Marine Enterprises uses cumulative voting and there are five open seats in the current election; how much will it cost you to buy a seat now? A. $9,100,000; $3,640,000 B. $9,100,000; $3,033,385 C. $9,100,052; $3,548,052 D. $9,100,052; $3,033,385 E. $9,100,052; $3,640,000

d

Any person who owns a license to trade on the NYSE is called a: A. dealer. B. floor trader. C. specialist. D. member. E. proxy.

d

Berkeley, Inc. just paid an annual dividend of $2.60 per share on its stock. The dividends are expected to grow at a constant rate of 4.5 percent per year, indefinitely. If investors require an 11 percent return on this stock, what will the price be in 12 years? A. $66.46 B. $67.84 C. $69.16 D. $70.89 E. $74.08

d

Computing the present value of a growing perpetuity is most similar to computing the current value of which one of the following? A. Non-dividend-paying stock B. Stock with a constant dividend C. Stock with irregular dividends D. Stock with a constant growth dividend E. Stock with growing dividends for a limited period of time

d

Delfino's expects to pay an annual dividend of $1.50 per share next year. What is the anticipated dividend for year 5 if the firm increases its dividend by 2 percent annually? A. $1.50 × (1.02)1 B. $1.50 × (1.02)2 C. $1.50 × (1.02)3 D. $1.50 × (1.02)4 E. $1.50 × (1.02)5

d

Delphin's Marina is expected to pay an annual dividend of $0.58 next year. The stock is selling for $8.53 a share and has a total return of 12 percent. What is the dividend growth rate? A. 3.82 percent B. 4.03 percent C. 4.28 percent D. 5.20 percent E. 5.49 percent

d

The Chip Dip Co. has 15,500 shares of stock outstanding, grants one vote per share, and uses straight voting. How many shares must you control to guarantee that you will be elected to the firm's board of directors if there are three open seats? A. 5,167 shares B. 5,134 shares C. 3,876 shares D. 7,751 shares E. 7,134 shares

d

The Glass Ceiling paid an annual dividend of $2.20 per share last year. Management just announced that future dividends will increase by 2.8 percent annually. What is the amount of the expected dividend in year 5? A. $2.39 B. $2.41 C. $2.46 D. $2.53 E. $2.58

d

The Toy Box pays an annual dividend of $2.40 per share and sells for $46.60 a share based on a market rate of return of 15 percent. What is the capital gains yield? A. 7.35 percent B. 7.78 percent C. 9.23 percent D. 9.85 percent E. 10.11 percent

d

The dividend growth model can be used to value the stock of firms which pay which type of dividends? I. constant annual dividend II. annual dividend with a constant increasing rate of growth III. annual dividend with a constant decreasing rate of growth IV. zero dividend A. I only B. II only C. II and III only D. I, II, and III only E. I, II, III, and IV

d

The required return on Mountain Meadow stock is 14 percent and the dividend growth rate is 3.5 percent. The stock is currently selling for $11.80 a share. What is the dividend yield? A. 7.50 percent B. 8.00 percent C. 9.75 percent D. 10.50 percent E. 12.50 percent

d

What is the name given to the model that computes the present value of a stock by dividing next year's annual dividend amount by the difference between the discount rate and the rate of change in the annual dividend amount? A. Stock pricing model B. Equity pricing model C. Capital gain model D. Dividend growth model E. Present value model

d

Which one of the following generally pays a fixed dividend, receives first priority in dividend payment, and maintains the right to a dividend payment, even if that payment is deferred? A. Cumulative common B. Noncumulative common C. Noncumulative preferred D. Cumulative preferred E. Senior common

d

You have agreed to pay a five percent commission to your best friend if he can locate a buyer for your car. This arrangement is most similar to the compensation arrangement for which one of these individuals who is involved with the stock market? A. Specialist B. Floor trader C. Market maker D. Commission broker E. Dealer

d

A broker is an agent who: A. trades on the floor of an exchange for himself or herself. B. buys and sells from inventory. C. offers new securities for sale to dealers only. D. who is ready to buy or sell at any time. E. brings buyers and sellers together.

e

A stock has paid dividends of $1.80, $1.85, $2.00, $2.20, and $2.25 over the past five years, respectively. What is the average capital gains yield? A. 2.80 percent B. 3.24 percent C. 4.45 percent D. 5.34 percent E. 5.79 percent

e

For the past six years, the price of Slate Rock stock has been increasing at a rate of 8.6 percent a year. Currently, the stock is priced at $47 a share and has a required return of 14 percent. What is the dividend yield? A. 1.20 percent B. 2.87 percent C. 3.39 percent D. 4.28 percent E. 5.40 percent

e

General Importers announced today that its next annual dividend will be $2.60 per share. After that dividend is paid, the company expects to encounter some financial difficulties and is going to suspend dividends for 5 years. Following the suspension period, the company expects to pay a constant annual dividend of $1.30 per share. What is the current value of this stock if the required return is 18 percent? A. $3.01 B. $3.55 C. $3.89 D. $4.27 E. $4.88

e

If shareholders are granted a preemptive right they will: A. be given the choice of receiving dividends either in cash or in additional shares of stock. B. be paid dividends prior to the preferred shareholders during the preemptive period. C. be entitled to two votes per share of stock. D. be able to choose the timing and amount of any future dividends. E. have priority in the purchase of any newly issued shares.

e

Newly issued securities are sold to investors in which one of the following markets? A. Proxy B. Stated value C. Inside D. Secondary E. Primary

e

The Border Crossing just paid an annual dividend of $4.20 per share and is expected to pay annual dividends of $4.40 and $4.50 per share the next two years, respectively. After that, the firm expects to maintain a constant dividend growth rate of 2 percent per year. What is the value of this stock today if the required return is 14 percent? A. $30.04 B. $32.18 C. $33.33 D. $35.80 E. $36.75

e

The Printing Company stock is selling for $32.60 a share based on a 14 percent rate of return. What is the amount of the next annual dividend if the dividends are increasing by 2.5 percent annually? A. $3.48 B. $3.52 C. $3.57 D. $3.66 E. $3.75

e

The capital gains yield equals which one of the following? A. Total yield B. Current discount rate C. Market rate of return D. Dividend yield E. Dividend growth rate

e