Chapter 7 Finance

A share of a preferred stock pays a dividend of $0.50 each quarter. If you are willing to pay $20.00 for this preferred stock, what is your simple (not effective) annual rate of return? 10%
Shareholders exert control of the management of the firm by: electing board members who can replace the management.
Stock owned by the organizers of the firm who will have full voting rights is: founders’ shares.
Which of the following is true about the change in a stock price? If investors demand higher returns to invest in stocks, then prices should fall.
What is the formula to calculate P/E ratio? Market price per share รท Earnings per share
In international markets, excluding stocks sold in the United States, what is a stock that is traded in a country other than the issuing company’s home country called? Euro stock
Which of the following is true about a growth stock? It generally pays little or no dividends so as to retain earnings to help fund developmental opportunities.
Which of the following securities is eligible for a cumulative dividend? Preferred stock
On January 3, 2016, the stock price of a firm was $25 and on January 4, 2016, it reduced to $19. Which of the following is a probable reason for the decrease in the stock price? Increased rate of return
Which of the following is true about the P/E ratio of a firm? The appropriate value of P/E ratio is multiplied with EPS to estimate the stock price.
Stock prices move opposite changes in cash flows expected from the stock in the future, but they move in the same direction as changes in rates of return. False
A shareholder can transfer the right to vote to a second party, by means of an instrument known as _____. proxy
A preferred stock can be exchanged for a certain number of shares of common stock at the conversion price
A firm expects to pay dividends at the end of each of the next four years of $2.00, $1.50, $2.50, and $3.50. If growth is then expected to level off at 8 percent, and if you require a 14 percent rate of return, how much should you be willing to pay for this stock? 43.97
Which of the following is true about the payment of dividends by a firm? Growth stocks pay little or no dividends and instead retain most of their earnings each year
Which of the following is a feature of a preferred stock? Preferred stockholders have a higher priority claim to distributions made by the firm than common stockholders.
Which of the following securities can be converted into common stock? preferred stocks
If the price of a firm’s stock is overvalued, then the company may repurchase shares of their common stock. false – if it’s undervalued
A common stock of a firm will have a maturity period of 10 years. false

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