Stocks exam 1

A stock quote indicates a stock price of $60 and a dividend yield of 3%. The latest quarterly dividend received by stock investors must have been ______ per share.

.45

A stock quote indicates a stock price of $88 and a dividend yield of 2%. The latest quarterly dividend received by stock investors must have been ______ per share.

0.44

the dodd-rank reform act does all of the following except: 1. reduces capital requirements for banks. 2. increases transparency in the derivatives market 3. limits the risk-taking in which banks can engage 4. requires public companies to set "claw-back" provisions 5. creates an office within the SEC to oversee credit rating agencies.

1

Active trading in markets and competition among securities analysis helps ensure that: 1. security prices approach informational efficiency 2. riskier securities are priced to offer higher potential returns 3. investors are unlikely to be able to consistently find under or overvalued securities

1, 2, 3

Methods of encouraging managers to act in shareholders best interest include 1. threat of takeover 2. proxy fights for control for the board of directors 3. trying managers compensation to stock price performance

1, 2, 3

Which of the following is not a characteristic of common stock ownership? 1. residual claimant 2. unlimited liability 3. voting rights 4. right to any dividend paid by the corporation.

2

The sarbanes-oxley act tightened corporate governance rules by requiring all but which of the following: 1. Required that corporations have more independent directors. 2. Required that the CFO personally vouch for the corporation's financial statements. 3. Required that firms could no longer employ investment bankers to sell securities to the public. 4. Required the creation of a new board to oversee the auditing of public companies.

3

Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million, and $150 million, respectively. If you were to construct a price-weighted index of the three stocks, what would be the index value?

39

financial markets allow for all but which one of the following 1. shift consumption through time from higher income periods to lower 2. price securities according to their riskiness 3. channel funds from lenders of funds to borrowers of funds 4. allow most participants to routinely earn high returns without low risk

4

The Hydro Index is a price weighted stock index based on the 5 largest boat manufacturers in the nation. The stock prices for the five stocks are $10, $20, $80, $50 and $40. The price of the last stock was just split 2 for 1 and the stock price was halved from $40 to $20. What is the new divisor for a price weighted index?

4.50

Three stocks have share prices of $25, $85, and $55 with total market values of $480 million, $430 million, and $230 million, respectively. If you were to construct a price-weighted index of the three stocks, what would be the index value?

55

The Chompers Index is a price weighted stock index based on the 3 largest fast food chains. The stock prices for the three stocks are $92, $42, and $82. What is the price weighted index value of the Chompers Index?

72

A benchmark index has three stocks priced at $36, $59, and $69. The number of outstanding shares for each is 415,000 shares, 535,000 shares, and 683,000 shares, respectively. If the market value weighted index was 980 yesterday and the prices changed to $36, $56, and $72, what is the new index value?

985

---portfolio construction starts with selecting attractively priced securities

Bottom up

Lanni sells the shares of stock for $50 per share and uses part of the proceeds to pay off the bank loan.

In selling 2,500 shares of stock for $125,000, Lanni is exchanging one financial asset correct for another. In paying off the IOU with $50,000, Lanni is exchanging financial assets correct. The loan is destroyed correct in the transaction, since it is retired when paid.

Lanni sells the software product to Microsoft, which will market it to the public under the Microsoft name. Lanni accepts payment in the form of 2,500 shares of Microsoft stock.

Lanni sells the software, which is a real asset correct, to Microsoft. In exchange Lanni receives a financial asset correct, 2,500 shares of Microsoft stock. A new financial asset is created correct if Microsoft issues new shares.

in 2008 the largest corporate bankruptcy in US history involved in the investment banking firm of

Lehman brothers

After much investigation, an investor finds that intel stock is currently underpriced, this is an example of

Security analysis

Lanni Products is a start-up computer software development firm. It currently owns computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Lanni's owners. Choose the correct answer in the following statements about financial and real assets. a. Lanni takes out a bank loan. It receives $50,000 in cash and signs a note promising to pay back the loan over three years.

The bank loan is a financial liability correct for Lanni. Lanni's IOU is the bank's financial asset correct. The cash Lanni receives is a financial asset correct. A new financial asset created correct is Lanni's promissory note held by the bank.

Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software.

The cash paid by Lanni is the transfer of a financial asset correct to the software developer. In return, Lanni gets a real asset correct, the completed software.

You decide to purchase an equal number of shares of stocks of firms to create a portfolio. If you wanted to construct an index to track your portfolio performance, your best match for your portfolio would be to construct ______.

a price weighted index

the standard and poors 500 is ---weighted index

a value

currently the dow jones industrial average is computed by

adding the prices of 30 large "blue-chip" stock and dividing by a divisor adjusted for stock splits and large stock dividends

Which of the following indexes are market value-weighted? I. The NYSE Composite II. The S&P 500 III.The Wilshire 5000

all

Which of the following does not approximate the performance of a buy-and-hold portfolio strategy? 1. an equally weighted index 2. a price-weighted index 3. a value-weighted index 4. all of these options (Weights are not a factor in this situation.)

an equally weighted index

After considering current market conditions, an investor decides to place 60% of her funds in equities and the rest in bonds, this is an example of

asset allocation

in calculating the dow jones industrial average, the adjustment for a stock split occurs

by adjusting the divisor

Which one of the following is a true statement? 1. Dividends on preferred stocks are tax-deductible to individual investors but not to corporate investors. 2. Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock. 3. Preferred stockholders have voting power. 4. Investors can sue managers for nonpayment of preferred dividends.

common dividends cannot be paid if perferred dividends are in arrears on cumulative preferred stock

the inability of shareholders to influence the decisions of managers, despite overwhelming shareholder support is a breakdown in what process or mechanism?

corporate governance

financial intermediaries exist because small investors cannot efficiently

diversify their portfolios, gather information, assess and monitor the credit risk of borrowers

in recent years the greatest dollar amount of securitization for which type of loan?

home mortgages

Which one of the following is a true statement regarding the Dow Jones Industrial Average? 1. It is a value-weighted average of 30 large industrial stocks. 2. It is a price-weighted average of 30 large industrial stocks. 3. It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange. 4. It is a value-weighted average of all stocks traded on the New York Stock Exchange.

it is a price weighted average of 30 large industrial stocks

which the following is an agency problem

managers engage in empire building, managers protect their jobs by avoiding risky projects, managers over consume luxuries such as corporate jets

According to the flow of funds account of the united states, the largest liability of U.S households is

mortgages

---portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis

passive

the efficient market hypothesis suggest that

passive portfolio management strategies are the most appropriate investment strategies

suppose an investor is considering one of two investments that are identical in all respects except for risk. if the investor anticipated a fair return the risk of the security he invest in, he can expect

pay less for the security that has a higher risk

According to the flow of funds account of the united states, the largest financial asset of the U.S households is

pension reserves

The material wealth of the society is determined to the economy's --- which is a function of the economy's ---

productive capacity; real asset

Preferred stock is like long term debt in that

promises to play its holder a fixed stream of income each year

According to the flow of funds Accounts of the united states, the largest single asset of the U.S households is

real estate

a major cause of the mortgage market meltdown in 2007 and 2008 was linked to

securitization

Asset allocation refers to

the allocation of the investment portfolio across broad asset classes

In a ___________ index, changes in the value of the stock with the greatest market value will move the index value the most, everything else equal.

value weighted index