FIN101 Chapter 7

Which one of the following types of securities has the lowest priority in a bankruptcy proceeding? A. Convertible bond B. Senior debt C. Common stock D. Preferred stock E. Straight bond

Common stock

Sugar Cookies will pay an annual dividend of $1.23 a share next year. The firm expects to increase this dividend by 8 percent per year the following four 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. ($1.23) x(1.08 x4) x(1.02 x3) B. ($1.23) x(1.08 x4) x(1.02 x2) C. ($1.23) x(1.08)4x(1.02)2 D. ($1.23) x(1.08)4x(1.02)3 E. ($1.23)x (1.08)4x(1.02)4

($1.23) x(1.08)4x(1.02)2

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. Par value per share E. Book value per share

Capital gains yield

Mary owns 100 shares of stock. Each share entitles her to one vote per open seat on the board of directors. Assume there are three 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

Cumulative

Which type of stock 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. Noncumulative preferred B. Cumulative preferred C. Senior common D. Cumulative common E. Noncumulative common

Cumulative preferred

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).

D5/(R - g).

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

Dividend growth rate

The required return on a stock is equal to which one of the following if the dividend on the stock decreases by a constant 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 x Capital gains yield

Dividend yield + Capital gains yield

What is the market called that facilitates the sale of shares between individual investors? A. Primary B. Proxy C. Secondary D. Inside E. Initial

Secondary

The constant growth model can be used to value the stock of firms that have which type(s) of dividends? A. Dividends that change by either a constant amount or a constant rate B. Dividends that change annually by a constant amount or that are zero C. Dividends that change annually by a constant amount D. Dividends that are either constant or change annually at a constant rate E. Only dividends that increase at a constant rate

Dividends that are either constant or change annually at a constant rate

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 each share receives one vote. A. Twenty percent of the shares plus one share B. Twenty-five percent of the shares plus one share C. One-third of the shares plus one share D. Fifty percent of the shares plus one share E. Fifty-one percent of the shares plus one share

Fifty percent of the shares plus one share

A person who executes customer orders to buy and sell securities on the floor of the NYSE is called a: A. supplemental liquidity provider (SLP). B. designated market maker (DMM). C. runner. D. Floor broker. E. market maker.

Floor broker.

Which statement is true? 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. Preferred dividends provide tax-free income to individual investors. E. Preferred shareholders prefer noncumulative dividends over cumulative dividends.

From a legal perspective, preferred stock is a form of corporate equity.

.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

Increase in the capital gains yield

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

Primary

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 term applies to this granting of authority? A. Straight B. Cumulative C. Consent-form D. Proxy E. In absentia

Proxy

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. is ready to buy or sell at any time. E. brings buyers and sellers together.

brings buyers and sellers together.

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.

cash or stock payments to shareholders.

Inside quotes are defined as the: A. bid and asked prices presented by NYSE DMMs. 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.

lowest asked and highest bid offers

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

member.

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

next year's expected dividend divided by the current market price per share.

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.

order flow.

Dividends are: A. payable at the discretion of a firm's president. B. treated as a tax-deductible expense of the issuing firm. C. paid out of after tax profits. D. paid only to preferred stockholders. E. only partially taxable to high-income individual shareholders.

paid out of after tax profits

The dividend yield on a stock will increase if the: A. dividend growth rate decreases. B. stock price decreases. C. capital gains rate decreases. D. stock price increases. E. tax rate on dividends increases

stock price decreases.

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

straight