Finance Chapter 8

A. 28.57%, 7.14% You buy a stock for $14 per share and sell it for $18 after you collect a $1.00 per sharedividend. Your pre-tax capital gain yield is _____ and your pre-tax dividend yield is _____.A)28.57%; 7.14%B)35.71%; 0.00%C)21.42%; 5.55%D)22.22%; 5.55%E)27.78%; 6.32%
A. I only Common stocks typically have which of the following that bonds do not have?I. Voting rightsII. Fixed cash flowsIII. Set maturity dateIV. Tax deductibility of cash flows to investorsA. I onlyB. I, II and IV onlyC. II, III and IV onlyD. IV only
B. 19.6% You buy a stock for $10 per share and sell it for $12 after holding it for slightly over a year and collecting a $0.50 per share dividend. Your ordinary income tax rate is 28% and your capital gains tax rate is 20%. Your after-tax rate of return is _______.A)18.1%B)19.6%C)25.0%D)20.2%E)17.4%
C. $1.55 An investor has a 38% ordinary income tax rate and a 20% long term capital gains tax rate. The investor holds stock in a firm that could pay its usual $1 per share dividend or reinvest the cash in the firm. The stock price is currently $25 per share. If the firm does not pay the dividend the share price will rise. If it pays the dividend the share price will stay the same. By how much must the share price rise if the dividend is not paid in order to make the investor indifferent between receiving the dividend or not?A)$2.00B)$0.59C)$1.55D)$1.97E)$2.50
D. Cumulative With ____________ voting, all directors up for election are voted on by the shareholders at the same time in one general electionA. straightB. ParticipatingC. NonparticipatingD. Cumulative
A. Cumulative If all preferred dividend payments that have been missed must be paid before any common stock dividend can be paid the preferred stock is called _____________ preferred stock.A. CumulativeB. ParticipatingC. NonparticipatingD. Voting
B. Euronext In 2007 the NYSE merged with _________________.A. NasdaqB. EuronextC. American ExchangeD. Chicago Mercantile Exchange
E. None of the above If the net proceeds are greater than the gross proceeds in an underwritten offeringA)The investment banker made a profit on the spreadB)The issuing company under priced its securitiesC)The issue fails to occur D)The SEC rescinds the issueE)None of the above
D.Allow existing shareholders to buy shares of the new offering if they desire. The preemptive right is designed toA)Allow management to diffuse stock ownership any voting power B)Allow managers to preempt a stock offering if they do not like the terms of the dealC)Allow existing shareholders the right to sell their existing shares before the new offerD)Allow existing shareholders to buy shares of the new offering if they desireE)None of the above
B. SOE system The NASDAQ automatic order execution system for individual traders placing buy or sell orders of 1000 or fewer shares is called theA)ECN Network B)SOE SystemC)NASDAQ/AMEX Joint ProgramD)Instinet Network E)E*Trade Online Program
E. Red herring prospectus The preliminary version of a security offer that is circulated to potential buyers before SEC approval (registration) is obtained is called aA)Final prospectusB)Shelf registration statementC)Due diligence draftD)Waiting period offer E)Red herring prospectus
A. 20 day; 2 years A shelf registration allows firms the opportunity to avoid the normal _____ day waiting period by allowing preregistration of securities for up to _____ years.A)20 day; 2 yearsB)10 day; 1 year C)15 day; 3 yearsD)20 day; 1 year E)30 day; 2 year
B. I and IV only Which of the following is/are true about specialists?I.Investment banks generally cannot be specialistsII.Specialists are used by the NASDAQ systemIII.Market and limit orders are transacted at specialist posts, but the specialist’s ‘own account’ orders are executed elsewhereIV.Specialists help maintain continuous tradingA)I, II and III onlyB)I and IV onlyC)II, III and IV onlyD)I onlyE)III only
I and II only As of December 2005, trading licenses are required to conduct trades on the floor of the NYSE. Which of the following statements about these trading licenses is/are correct?I. Licenses are auctioned off in a special type of auction called a Dutch auction.II. The NYSE determines the minimum bid price.III. The SEC determines the maximum bid price.IV. Trading licenses are good for 10 years.
D. Stock/credit rating Which of the following information is NOT usually found in a Wall Street Journal stock quote?A. Dividend yieldB. Price earnings ratioC. Closing price of the stockD. Stock/credit rating
D. NYSE; NASDAQ In terms of volume of trading and market value of firms traded the ________ is thelargest U.S. stock market. In terms of number of firms traded the ___________ is the largest in the U.S.A)NYSE; NYSEB)NASDAQ; NYSEC)NYSE; AMEXD)NYSE; NASDAQE)NASDAQ; AMEX
D. Highest bid and lowest ask On the NASDAQ system, the inside quotes are theA)Lowest ask and lowest bidB)Lowest bid and highest askC)Highest bid and highest askD)Highest bid and lowest ask E)None of the above
A, B and C NYSE listing has traditionally benefited a firm by A. improving the stock’s price.B. generating increased publicity for the firm.C. providing easier access to primary market capital.D. B and C onlyE. A, B, and C
I, II and III only Which of the following indices are value-weighted?I. NYSE CompositeII. S&P500III. NASDAQ CompositeIV. Dow Jones Industrial Average
B. Households The largest single type of holder of common stock ($) isA)Pension fundsB)HouseholdsC)Mutual fundsD)Brokers and dealersE)Life insurance firms
720,000 A firm is using cumulative voting and four director spots are up for election. There are 3.6 million shares outstanding. How many shares must a minority owner own or control to ensure that he or she can gain control of one seat on the board of directors? A. 900,001B. 880,001C. 720,001D. 1,800,001E. 1,750,001
102.21 Today Stock A is worth $20 and has 1000 shares outstanding. Stock B costs $30 and has 500 shares outstanding. Stock C is priced at $50 per share and has 1200 shares outstanding. If tomorrow Stock A is priced at $22, Stock B at $35, and Stock C is worth $48, what would the value-weighted index amount equal? (The index has a base period value of 100.) A. 35.00B. 105.00C. 108.44D. 101.45E. 102.21
B. I and II only Suppose that over the last ten to fifteen years significantly large numbers of investorshave been able to earn abnormal returns from using the firm’s publicly availablefinancial information to forecast growth in earnings and dividends. This would beevidence that the markets are notI.weak form efficientII.semi-strong form efficientIII.strong form efficientA)I onlyB)I and II onlyC)III onlyD)II and III onlyE)I, II and III
D. Shelf In a ___________ offering the firm preregisters with SEC any securities it wishes to sell over the next two years.A)RightsB)Full underwrittenC)General cashD)Shelf E)Best efforts
C. red herring The stamp on a prospectus accompanying a new issue that indicates the issue has not yet been approved for sale by the SEC is called theA)green hornetB)seal of approvalC)red herringD)eagle stampE)Reg FD
E. I, II and III The NYSE specialists are charged for their own accountII.ensuring public limit orders are executedIII.facilitating processing public market ordersA)I onlyB)I and II onlyC)II and III onlyD)I and III onlyE)I, II and III
D.45-64 The age group that holds the most stock is the ____________ group.A)Under 35B)35-44C)45-64D)65 and older
B.OTC bulletin board The electronic based market for less actively traded U.S. securities is theA)ADR marketB)OTC Bulletin BoardC)Pink Sheet stocksD)NYSE Low Volume MarketE)ECN Market
D. ECNs Computerized markets that automatically match buyers and sellers orders and are used primarily by institutions traders are calledA)OTC bulletin boardsB)SPIDRSC)Index MarketsD)ECNsE)Specialists
I, IV, and V only Ethanol Lawn Mowers issued 500,000 shares to the public. The gross proceeds were $31,250,000 and the net proceeds were $30 million. Merrel Bench was the lead underwriter and deal negotiator, but 10 other investment bankers (one of which was Golden Sax) were also used to put up capital and help sell the issue. Which of the following statements is/are correct?I. The public paid $62.50 a share.II. Golden Sax was the originating house.III. The spread per share was $3.50.IV. Merrel Bench is the sole book running manager.V. This offer was a syndicated deal.
B. ADRs In 2004 about 20% of the shares of the top one hundred non-U.S. companies (ranked by sales) were owned by U.S. residents. Most of these stocks were held in the form of _________________.A)Foreign direct investmentB)ADRsC)ProxiesD)GRDsE)Brady bonds
E. Cumulative voting When all the directors up for election are voted on at the same time the procedure is calledA)Dual class votingB)Straight votingC)Limited liability votingD)Proxy votingE)Cumulative voting
D. 95 years A stock has a P/E ratio of 95. If earnings don’t grow the investor must wait how longto recover their investment?A)20 yearsB)45 yearsC)60 yearsD)95 yearsE)None of the above
E. A, B and C NYSE listing has traditionally benefited a firm byA)Improving the stock’s priceB)Generating increased publicity for the firmC)Providing easier access to primary market capitalD)B and C onlyE)A, B and C
E. I, II and III only Which of the following indices are value-weighted?I.NYSE CompositeII.S&P 500III.NASDAQ CompositeIV.Dow Jones Industrial AverageA)I, II, III and IVB)I onlyC)II onlyD)II, III and IV onlyE)I, II and III only
A. 400,001 A firm is using cumulative voting and five director spots are up for election. There are2.4 million shares outstanding. How many shares must a minority owner own or control to ensure that he or she can gain control of one seat on the board of directors?A)400,001B)1,200,001C)555,001D)650,001E)None of the above
D. Strong form efficient If no information (publicly available or not) can be consistently used to predict stock price changes then the market isA)weak form efficientB)semi-strong form efficientC)semi-strong form inefficientD)strong form efficientE)strong form inefficient
A. Spinning The process of allocating shares in an IPO to certain customers in exchange for additional business or other perks is calledA)SpinningB)LadderingC)Biased analyst reporting (BAR)D)Front runningE)Short dealing

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