Financial Management Unit 3 Smartbook
A projected IRR on a risky investment in the ______ percent range is not unusual
10 to 20
Bonds used in Ibbotson-Sinquefield's long-term U.S. government bond portfolio had maturities of _______ years
20
In the Ibbotson-Sinquefield studies, long-term corporate bonds have which of the following characteristics?
20-year maturities High quality
A zero-growth stock pays a dividend of $2 per share and has a discount rate of 10%. What will the stocks price be?
20.00 (Stock price = dividend per share / discount rate)
During the financial crisis of 2008, the S&P Index fell by _______ percent
37
The dividend yield for a 1-year period is equal to the annual dividend amount divided by the _____
Beginning stock price
________ formula is the equation that combines the arithmetic average return and the geometric average return
Blume's
If you are forecasting a few decades in the future (as you might do for retirement planning) you should calculate the expected return using:
Blume's formula
The AAR is calculated by taking the average net income and dividing it by the average _______ value
Book
A person who brings buyers and sellers together is called a
Broker
The ________ gains yield can be found by taking the difference between the ending stock price and the initial stock price and dividing it by the initial stock price
Capital
If you buy a stock for $10 and later sell it for $16, you will have a
Capital gain of $6
Which of the following are ways to make money by investing in stocks?
Capital gains Dividends
When a company declares a dividend, shareholders generally receive _________
Cash
Which of the following are true?
Common stocks may experience negative returns. T-bills sometimes outperform common stocks.
NASDAQ has which of these features?
Computer network of securities dealers Multiple market maker system
Three special case patterns of dividend growth include
Constant growth Zero growth Nonconstant growth
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?
Cumulative voting
Someone who maintains an inventory of stocks and buys and sells those stocks is known as a
Dealer
An NYSE member who acts as a dealer in particular stocks is called a _________ market maker
Designated
Preferred stock has a preference over common stock in the
Distribution of corporate assets Payment of dividends
A _________ payment is a payment by a corporation to shareholders, made in either cash or stock
Dividend
Common stock as no special preference either in receiving __________ or in bankruptcy
Dividends
The two potential ways to make money as a stockholder are through _________ and capital appreciation
Dividends
Which of the following are expected cash flows to investors in stocks?
Dividends Capital gains
Which of the following is true about dividend growth patterns?
Dividends may grow at a constant rate
Which of the following represents the valuation of stock using a zero-growth model?
Dividends/Discount rate
T/F: 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
False
T/F: For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed.
False
An NYSE member who executes customer buy and sell orders is called a ____ broker.
Floor
Average returns can be calculated using _________ or arithmetic average
Geometric
The ________ (greater/lower) the risk, the greater the required return
Greater
The second lesson from studying capital market history is that risk is ___________
Handsomely rewarded
Dividends are the _________ component of the total return from investing in stock
Income
The capital gains yield can be found by finding the difference between the ending stock price and the initial stock price and dividing it by ________
Initial stock price
Stock price reporting has increasingly moved from traditional print media to the _________ in recent years
Internet
Which of the following are features of common stock?
It generally has voting rights It has no special preference in bankruptcy It has no special preference in receiving dividends
One reason corporations use staggered boards is that
It makes takeover attempts less likely to be successful
WinWin Corporation has 5 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?
No minority shareholder would have enough votes to win any seat on the board
When voting for the board of directors, the number of votes a shareholder is entitled to is usually ______ vote per share held.
One
The year 2008 was
One of the worst years for stock market investors in US history
When voting for the board of directors, the number of votes a shareholder is entitled to is generally determined as follows:
One vote per share held
The formula for valuing a constant growth stock is
P0 = D1/(R − g)
Normally, the excess rate of return on risky assets is ________
Positive
A stock with a dividend priority over common stock is called a ________ stock
Preferred
Initial public offerings of stock occur in the ________ market
Primary
The arithmetic average rate of return measures the ________
Return in an average year over one period
The Sharpe ratio measures _________
Reward to risk
The excess return on a risky asset is the difference between the risky return and the _________ rate
Risk-free
Mona Corporation has a variance of returns of 343, while Scott Corporation has a variance of returns of 898. Which company's actual returns vary more from their mean return?
Scott Corporation
The trading of existing shares occurs in the _________ market
Secondary
The ________ ratio is calculated as the risk premium of the asset divided by the standard deviation
Sharpe
The NYSE member who acts as a dealer in a small number of securities is called a
Specialist
The standard deviation is the _______ of the variance
Square root
In a ______ board, only a fraction of the directorships are up for election at any one time
Staggered
Mota Motors has 8 directors on its board, 2 of whom go up for election each year. This is an example of a ______
Staggered board
The goal of many successful organizations is a(n) _________ rate of growth in dividends
Steady
A capital gain on a stock results from an increase in _________
Stock price
With _______ voting, the directors are elected one at a time and the only way to guarantee a seat is to own 50% plus one share
Straight
Investment firms that are active participants in stocks assigned to them are called _________ liquidity providers
Supplemental
A normal distribution has a ______ shape
Symmetrical
Some important characteristics of the normal distribution are that it is:
Symmetrical Bell-shaped
The Ibbotson-Sinquefield data show that over the long-term ______
T-bills, which had the lowest risk, generated the lowest return Small-company stocks generated the highest average return Small-company stocks had the highest risk level
Which of the following is commonly used to measure inflation?
The Consumer Price Index (CPI)
A benchmark PE ratio can be determined using:
The PEs of similar companies A company's own historical PEs
The geometric average rate of return is approximately equal to _________
The arithmetic mean minus half of the variance
Which of the following entities declares a dividend?
The board of directors
When the stock being valued does not pay dividends,
The dividend growth model can still be used
Studying market history can reward us by demonstrating that
The greater the potential reward is, the greater the risk There is a greater reward for bearing risk
T/F: It can be advantageous to have a staggered board because it provides "institutional memory".
True
The dividend _______ is defined as the annual dividend amount divided by the beginning stock price
Yield
Capital Corp is considering a project whose internal rate of return is 14%. If Capital's required rate of return is 14%, the projects NPV is
Zero
More volatility in returns produces __________ difference between the arithmetic and geometric averages
a larger
Quizlet to review
https://quizlet.com/166542731/finance-midterm-7-9-flash-cards/
Average returns can be calculated ___________
two different ways
