Finance Exam Ch. 7

The common stock of The Garden of Eden is selling for $42 a share. The company pays a constant annual dividend and has a total return of 5.8 percent. What is the amount of the dividend?a)$6.81b)$3.70c)$1.02d)$2.04e)$2.44 $2.44
What is the market called that allows shareholders to resell their shares to other investors?a) Insideb) Proxyc) Primaryd) Initiale) Secondary Secondary
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) 6.91 percentb) 4.56 percentc) 6.63 percentd) 5.39 percente) 5.61 percent 5.61 percent (R=$1.60/$28.50 = 5.61 percent)
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) $12.56b) $14.07c) $13.31d) $12.95e) $13.68 $13.31 (P0 = ($1.45 × 1.028)/(0.14 – 0.028) = $13.31)
A DMM is a(n):a) trader who deals only with primary offerings.b) NYSE member who functions as a dealer for a limited number of securities.c) employee who executes orders to buy and sell for clients of his or her brokerage firm.d) individual who trades on the floor of an exchange for his or her personal account.e) broker who buys and sells securities from a market maker. NYSE member who functions as a dealer for a limited number of securities.
The price of a stock at year 4 can be expressed as:a)D1 × (1 + R)^5.b) D4/(R – g)c) D5/(R – g).d) D0/(R + g4).e) D0 × (1 + R)^5. D4/(R-g)
Which one of the following types of securities has no priority in a bankruptcy proceeding?a) Straight bondb) Convertible bondc) Common stockd) Senior debte) Preferred stock Common stock
Reynolds Metals common stock is selling for $25 a share and has a dividend yield of 3.1 percent. What is the dividend amount?a) $0.31b) $7.80c) $4.25d) $0.78e) $3.49 $0.78 (Dividend = 0.031 × $25 = $0.78)
Swan Lake Marina is expected to pay an annual dividend of $1.58 next year. The stock is selling for $18.53 a share and has a total return of 12 percent. What is the dividend growth rate?a) 3.28 percentb) 2.82 percentc) 3.03 percentd) 3.66 percente) 3.47 percent 3.47 percent (g = 0.12 – ($1.58/$18.53) = 3.47 percent)
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) $2.53b) $2.36c) $2.39d) $2.41e) $2.58 $2.53 (D5 = $2.20 × (1.028)5 = $2.53)
Braxton’s Cleaning 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 5 percent annually?a) $2.93b) $2.71c) $2.75d) $2.78e) $2.86 $2.93
A broker is an agent who: a) offers new securities for sale to dealers only.b) trades on the floor of an exchange for himself or herself.c) buys and sells from inventory.d) is ready to buy or sell at any time.e) brings buyers and sellers together. brings buyers and sellers together
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) In absentiab) Proxyc) Cumulatived) Consent-forme) Straight Proxy
Newly issued securities are sold to investors in which one of the following markets?a) Insideb) Proxyc) Primaryd) Secondarye) Stated value Primary
The Waffle 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 25 percent rate of return?a) $6.63b) $4.72c) $6.83d) $6.52e) $5.00 $5.00 (P = $1.25/0.25 = $5.00)
Solar Energy, Inc. will pay an annual dividend of $1.85 next year. The company just announced that future dividends will be increasing by 2 percent annually. How much are you willing to pay for one share of this stock if you require a 14 percent return?a) $15.78b) $15.42c) $15.14d) $16.62e) $16.12 $15.42 (Po = $1.85/(0.14 – 0.02) = $15.42)
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)^3b) $1.50 × (1.02)^4c) $1.50 × (1.02)^2d) $1.50 × (1.02)^1e) $1.50 × (1.02)^5 $1.50 x (1.02)^5
The dividend yield is defined as:a) next year’s expected cash dividend divided by the current book value per share.b) next year’s expected cash dividend divided by the current market price per share.c) the current annual cash dividend divided by the current market price per share.d) the current annual 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. b) next year’s expected cash dividend divided by the current market price per share.
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) Present value modelb) Stock pricing modelc) Equity pricing modeld) Capital gain modele) Dividend growth model Dividend growth model
Which on of the following statements is correct?a) From a legal perspective, preferred stock is a form of corporate equityb) All classes of stock must have equal voting rights per sharec) Common shareholders elect the corporate directors while the preferred shareholders vote on mergers and acquisitionsd) Dividends are tax-free income for individual investorse) Shareholders prefer noncumulative dividends over cumulative dividends From a legal perspective, preferred stock is a form of corporate equity
If shareholders are granted preemptive right they will:a) be given the choice of receiving dividends either in cash or in additional shares of stockb)be paid dividends prior to preferred shareholders during the preemptive periodc) be entitled to two votes per share of stockd) be able to choose the timing and amount of any future dividendse) have priority in the purchase of any newly issued shares have priority in the purchase of any newly issued shares
Dexter inc. has a bond issue outstanding. The issue’s indenture provision prohibits the firm from redeeming the bonds during the first 3 years. The provision is referred to as the ____ provision.a) safeguardb) marketc) liquidityd) deferred calle) sinking fund deferred call
An efficient capital market is best defined as a market in which security prices reflect which on one of the following?a) Current inflationb) A risk premiumc) Available Informationd) The historical arithmetic rate of returne) the historical geometric rate of return Available information

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