Finance test 2
The divided growth model:
1. assumes that dividends increase at a constant rate forever 2. can be used to compute a stock price at any point in time 3. can be used to value zero-growth stocks 4. requires the growth rate to be less than the required return
An increase in which of the following will increase the current value of a stock according to the dividend growth model?
1. dividend amount 2. number of future dividends, provided the current number is less than infinite 4. dividend growth rate
which of the following statements is correct concerning the term structure of interest rates?
1. expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates. 2. the term structure of interest rates includes both an inflation premium and an interest rate risk 3. the real rate of return has minimal affect on the slope of the term structure of interest rates.
recently you discovered a potable income bond that is convertible. If you purchase this bond, you will have the right to do which of the following?
1. force the issuer to repurchase the bond prior to maturity 2. convert the bond into equity shares
What correctly describes US treasury bonds?
1. have a "tick" size of 1/32 2. highly liquid
Which of the following features do preferred shareholders and bondholders frequently have in common?
1. lack of voting rights 2. conversion option into common stock
Which of the following apply to a specialist who trades on the floor of the NYSE?
1. provides liquidity for an individual security 2. partially being replaces by SuperDOT 4. Acts as a dealer
You own 600 shares of a NASDAQ listed stock that you wish to sell. Which of the following options are available to you for this purpose?
1. sell the shares to a dealer at the dealer's bid price 2. sell directly to another individual via an ECN 3. offer the shares yourself on NASDAQ via an ECN
You own one share of a cumulative preferred stock which pays quarterly dividends. The firm has recently suffered financial setbacks and has failed to pay you 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 stakeholder, you should expect to receive the equivalent of ___ quarters of dividends.
3
which two of the following factors cause the yields on a corporate bond to differ from those on a comparable treasury security?
3. taxability 4. default risk
Al is retired and enjoys his daily life. His one concern is that his bonds provide a steady stream of income that will continue to allow him to have the money he desires to continue his active lifestyle. Although he has sufficient principal to live on, he only wants to spend the interest income provided by his holdings and thus is concerned about the purchasing power of that income. What bond would be best for Al?
5 year TIPS
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 % of outstanding shares one must own to gain personal control?
50 percent plus 1 vote
Mary is a retired widow who is financially dependent upon the interest income produced by her bond portfolio. Which one of the following bonds is the least suitable for her to own?
7 year income bond
Which one of the following statements is correct concerning the two-stage dividend growth model?
G1 can be greater than R
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 might be conducive to this sale?
Pink Sheets
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 info, 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 the 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:
commission broker
which of the following statements related to the NYSE is correct?
commission brokers work on behalf of the brokerage firm clients
which 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
You are trying to compare the present values of two separate streams of cash flows which have equivalent risks. One stream is expressed in nominal values and the other stream is expressed in real values. You decide the nominal values and the other stream is expressed in real values. You decide to discount the nominal cash flows using a nominal rate of 8 percent. What rate should you use to discount the real cash flows?
comparable real rate
Which one of the following statements applies to NASDAQ
comprised of 3 separate markets
Which of the following statements related to corporate dividends is correct?
corporate shareholders may received a tax break on a portion of their dividend income
the collar of a floating rate bond refers to the minimum and maximum:
coupon rates
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 shares of your votes for a single candidate. what is this type of voting called?
cumulative
which statement relates to preferred stock is correct?
cumulative preferred shares are more valuable than comparable non-cumulative shares
An agent who maintains an inventory from which he or she buys and sells securities is called a:
dealer
which of the following rights is never granted to all shareholders of a publicly held corporation?
determining the amount of the dividend to be paid per share
Today, June 15, you want to buy a bond with a quoted price of 98.64. The bond pays interest on Jan. 1 and July 1. what price represents your total cost of purchasing this bond today?
dirty price
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 of the following sets of dividend payments best meets the definitions of two-stage growth as it applies to the two-stage dividend growth model?
dividend payments which increase by 10% per year for 5 years followed by divided which increase by 3% 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
A US treasury bond that is quoted at 100:11 is selling:
for 100 and 11/32nds percent of face value
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 of a stock will:
grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely
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 info?
if cumulative voting applies, Jen is assured one seat on the board
the fisher effect primarily emphasizes the effects of ____ on an investor's rate of return
inflation
"Cat" bonds are primarily designed to help:
insurance companies fund excessive claims
when a floating rate bond tends to have less of as compared to a fixed rate coupon bond
interest rate risk
Supernormal growth is a growth rate that:
is unsustainable over the long term
last year, you purchased a "TIPS" at par. since that time, both market interest rates and the inflation rate have increased by .25 percent. Your bond has most likely done what?
maintained a fixed real rate of return
The secondary market is best defined by which 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 1366 trading license for the NYSE is called :
member
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 1000 shares of stock outstanding. The company:
must still declare each dividend before it becomes an actual company liability
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
you are an accountant and have been analyzing the financial statements of Euro Place Markets. 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 may have a bright future. on which of the following US markets might you be able to purchase shares in this firm?
pink sheets
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
National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past 15 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:
prices the same as a $1 perpetuity
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
Chemical mines has 5000 shareholders and is preparing to elect two new board members. You don't own enough shares to control election but are determined to oust the current leadership. Which one of the following is most likely outcome of this situation given than some shareholders are happy with existing management?
proxy fight for control of the board
What rate represents your purchasing power as a result of owning a bond?
real rate
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?
right to share in company profits prior to other shareholders
Who owns the NYSE?
shareholders
A market maker who acts as a dealer in one or more securities on the floor of 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 this type of voting called that requires this level of stock ownership?
straight
which of the following statements is correct?
the capital gains yield is the annual rate of change in a stock's price
which one of the following statements is correct?
the real rate must be less than the nominal rate given a positive rate of inflation
Winston Co. has a dividend-paying stock with a total return for the year of -6.5 % which of the following is true?
the stock has a negative capital gains yield
A 6 year, $1000 face value bond issued by Taylor Tools pays interest semiannually on Feb. 1 and Aug. 1. Assume today is Oct. 1, what will the difference be between this bond's clean and dirty prices today?
two month's interest
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 authority called?
voting by proxy
Phil has researched TLM technologies and believes the firm is poised to vastly increase in value. He wants to invest in this company. Phil has decided to purchase TLM technologies bonds so that he can have a steady stream of interest income. However, he still wishes that he could share in the firm's success along with TLM's shareholders. Which bond will be best?
warrant
Which one of the following is the electronic system used by the NYSE for directly transmitting orders to specialists?
SuperDOT
Answer this questions based not 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
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
an ECN is best described as:
a website that allows individual investors to trade directly with one anoter