Question 1

How do over-the-counter markets differ from organized exchanges?

Accepted Answer

Over-the-counter (OTC) markets and organ

Question 2

Preferred stockholders hold a claim on assets that has priority over the claims of

Accepted Answer

A)  both common stockholders and bondholders. 
B)  neither common stockholders nor bondholders. 
C)  common stockholders, but after that of bondholders. 
D)  bondholders, but after that of common stockholders. 
A)  both common stockholders and bondholders. 
B)  neither common stockholders nor bondholders. 
C)  common stockholders, but after that of bondholders. 
D)  bondholders, but after that of common stockholders.

Question 3

Which of the following statements about trading operations in an organized exchange is correct?

Accepted Answer

A)  Floor traders all deal in a wide variety of stocks. 
B)  In most trades, specialists match buy and sell orders. 
C)  In most trades, specialists buy for or sell from their own inventories. 
D)  The SuperDOT system is used to expedite large trades of over 100,000 shares. 
A)  Floor traders all deal in a wide variety of stocks. 
B)  In most trades, specialists match buy and sell orders. 
C)  In most trades, specialists buy for or sell from their own inventories. 
D)  The SuperDOT system is used to expedite large trades of over 100,000 shares.

Question 4

Common stock is the riskiest corporate security,followed by preferred stock and then bonds.

Accepted Answer

A) True 
 B)False

Question 5

The Enron financial scandal increased uncertainty about the quality of accounting information and as a result,increased required return on investment in stocks.

Accepted Answer

A) True 
 B)False

Question 6

To list on the NYSE,a firm must

Accepted Answer

A)  have earnings of at least $10 million per year. 
B)  have at least $500 million in outstanding debt. 
C)  have a total of $100 million in market value. 
D)  meet all of the above requirements. 
E)  meet A and C of the above requirements. 
A)  have earnings of at least $10 million per year. 
B)  have at least $500 million in outstanding debt. 
C)  have a total of $100 million in market value. 
D)  meet all of the above requirements. 
E)  meet A and C of the above requirements.

Question 7

Holding other things constant,a stock's value will be highest if its dividend growth rate is

Accepted Answer

A)  15%. 
B)  10%. 
C)  5%. 
D)  2%. 
A)  15%. 
B)  10%. 
C)  5%. 
D)  2%.

Question 8

A stock's market value will be higher the higher the investor's required rate of return is,all else being equal.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is true regarding the Gordon growth model?

Accepted Answer

A)  Dividends are assumed to grow at a constant rate forever. 
B)  The dividend growth rate is assumed to be greater than the required return on equity. 
C)  Both A and B of the above. 
D)  Neither A nor B of the above. 
A)  Dividends are assumed to grow at a constant rate forever. 
B)  The dividend growth rate is assumed to be greater than the required return on equity. 
C)  Both A and B of the above. 
D)  Neither A nor B of the above.

Question 10

Using the Gordon growth model,explain why the 2001 terrorist attacks and the Enron financial scandal caused stock prices to decline.

Accepted Answer

Gordon Growth Model works on t

Question 11

A ________ PE may indicate that the market feels the firm's earnings are very ________ risk and is therefore willing to pay a ________ for them.

Accepted Answer

A)  high; low; premium 
B)  high; high; discount 
C)  low; low; discount 
D)  high; high; premium 
A)  high; low; premium 
B)  high; high; discount 
C)  low; low; discount 
D)  high; high; premium

Question 12

Electronic Communications Networks apply technology to make organized exchanges more efficient and speedy.

Accepted Answer

A) True 
 B)False

Question 13

Stock values computed by valuation models may differ from actual market prices because it is difficult to

Accepted Answer

A)  estimate future dividend growth rates. 
B)  estimate the risk of a stock. 
C)  forecast a stock's future dividends. 
D)  all of the above are true. 
A)  estimate future dividend growth rates. 
B)  estimate the risk of a stock. 
C)  forecast a stock's future dividends. 
D)  all of the above are true.

Question 14

In 2013,the NYSE traded ________ shares on an average trading day.

Accepted Answer

A)  4 billion 
B)  7 billion 
C)  10 billion 
D)  12 billion 
A)  4 billion 
B)  7 billion 
C)  10 billion 
D)  12 billion

Question 15

(I)Preferred stockholders hold a claim on assets that has priority over the claims of common stockholders,but after that of bondholders.
(II)Firms issue preferred stock in far greater amounts than common stock.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

Question 16

The most active stock exchange in the world is the

Accepted Answer

A)  Nikkei Stock Exchange. 
B)  London Stock Exchange. 
C)  Shanghai Stock Exchange. 
D)  New York Stock Exchange. 
A)  Nikkei Stock Exchange. 
B)  London Stock Exchange. 
C)  Shanghai Stock Exchange. 
D)  New York Stock Exchange.

Question 17

Suppose the average industry PE ratio for auto parts retailers is 20.What is the current price of Auto Zone stock if the retailer's earnings per share is projected to be $1.85?

Accepted Answer

A)  $21.85 
B)  $37 
C)  $10.81 
D)  $9.25 
A)  $21.85 
B)  $37 
C)  $10.81 
D)  $9.25

Question 18

The main cause of fluctuations in stock prices is changes in

Accepted Answer

A)  tax laws. 
B)  errors in technical stock analysis. 
C)  daily trading volume in stock markets. 
D)  information available to investors. 
E)  total household wealth in the economy. 
A)  tax laws. 
B)  errors in technical stock analysis. 
C)  daily trading volume in stock markets. 
D)  information available to investors. 
E)  total household wealth in the economy.

Question 19

The 2001 terrorist attacks and the Enron financial scandal caused anticipated dividend growth to ________,investors' required return on equity to ________,and stock prices to ________.

Accepted Answer

A)  decrease; increase; decrease 
B)  decrease; increase; increase 
C)  increase; decrease; decrease 
D)  increase; decrease; increase 
A)  decrease; increase; decrease 
B)  decrease; increase; increase 
C)  increase; decrease; decrease 
D)  increase; decrease; increase

Question 20

(I)The largest of the organized stock exchanges in the United States is the New York Stock Exchange.
(II)To be listed on the NYSE,a firm must have a minimum of $100 million in market value or $10 million in revenues.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

Exam 13: The Stock Market

How do over-the-counter markets differ from organized exchanges?

Preferred stockholders hold a claim on assets that has priority over the claims of

Which of the following statements about trading operations in an organized exchange is correct?

Common stock is the riskiest corporate security,followed by preferred stock and then bonds.

The Enron financial scandal increased uncertainty about the quality of accounting information and as a result,increased required return on investment in stocks.

To list on the NYSE,a firm must

Holding other things constant,a stock's value will be highest if its dividend growth rate is

A stock's market value will be higher the higher the investor's required rate of return is,all else being equal.

Which of the following is true regarding the Gordon growth model?

Using the Gordon growth model,explain why the 2001 terrorist attacks and the Enron financial scandal caused stock prices to decline.

A ________ PE may indicate that the market feels the firm's earnings are very ________ risk and is therefore willing to pay a ________ for them.

Electronic Communications Networks apply technology to make organized exchanges more efficient and speedy.

Stock values computed by valuation models may differ from actual market prices because it is difficult to

In 2013,the NYSE traded ________ shares on an average trading day.

(I)Preferred stockholders hold a claim on assets that has priority over the claims of common stockholders,but after that of bondholders. (II)Firms issue preferred stock in far greater amounts than common stock.

The most active stock exchange in the world is the

Suppose the average industry PE ratio for auto parts retailers is 20.What is the current price of Auto Zone stock if the retailer's earnings per share is projected to be $1.85?

The main cause of fluctuations in stock prices is changes in

The 2001 terrorist attacks and the Enron financial scandal caused anticipated dividend growth to ________,investors' required return on equity to ________,and stock prices to ________.

(I)The largest of the organized stock exchanges in the United States is the New York Stock Exchange. (II)To be listed on the NYSE,a firm must have a minimum of $100 million in market value or $10 million in revenues.

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

A PE may indicate that the market feels the firm's earnings are very risk and is therefore willing to pay a for them.

The 2001 terrorist attacks and the Enron financial scandal caused anticipated dividend growth to ,investors' required return on equity to ,and stock prices to .