Question 1

Why would a crisis in the subprime mortgage market lead to declining prices in the U.S. equity markets?

Accepted Answer

The answer of Why would a crisis in the subprime...

Question 2

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 3

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

Accepted Answer

The answer of Using the Gordon growth model, explain why...

Question 4

More stock trading in the U.S. occurs in over-the-counter markets rather than on organized exchanges.

Accepted Answer

A) True 
 B)False

Question 5

Securities not listed on one of the exchanges trade in the over-the-counter market. In this exchange, dealers "make a market" by

Accepted Answer

A) buying stocks for inventory when investors want to sell. 
B) selling stocks from inventory when investors want to buy. 
C) doing both of the above. 
D) doing neither of the above. 
A) buying stocks for inventory when investors want to sell. 
B) selling stocks from inventory when investors want to buy. 
C) doing both of the above. 
D) doing neither of the above.

Question 6

A lower than average PE may mean that the market expects earnings to rise in the future.

Accepted Answer

A) True 
 B)False

Question 7

All stocks pay dividends, as that is the only way an investor can profit from holding stock.

Accepted Answer

A) True 
 B)False

Question 8

A stock currently sells for $30 per share and pays $1.00 per year in dividends. What is an investor's valuation of this stock if he expects it to be selling for $37 in one year and requires a 12 percent return on equity investments?

Accepted Answer

A) $38 
B) $33.50 
C) $34.50 
D) $33.93 
A) $38 
B) $33.50 
C) $34.50 
D) $33.93

Question 9

(I)Firms issue common stock in far greater amounts than preferred stock. (II)In a given year, the total volume of stock issued is much less than the volume of bonds issued.

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 10

What is the role of specialists on a stock exchange?

Accepted Answer

The answer of What is the role of specialists on...

Question 11

A basic principle of finance is that the value of any investment is

Accepted Answer

A) the present value of all future net cash flows generated by the investment. 
B) the undiscounted sum of all future net cash flows generated by the investment. 
C) unrelated to the future net cash flows generated by the investment. 
D) unrelated to the degree of risk associated with the future net cash flows generated by the investment. 
A) the present value of all future net cash flows generated by the investment. 
B) the undiscounted sum of all future net cash flows generated by the investment. 
C) unrelated to the future net cash flows generated by the investment. 
D) unrelated to the degree of risk associated with the future net cash flows generated by the investment.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

A high price earnings ratio (PE)gives what interpretation?

Accepted Answer

A) The market expects earnings to fall in the future. 
B) The market feels the firm's earnings are very high risk and are willing to pay a premium for them. 
C) The market expects the earnings to rise in the future. 
D) The firm is not paying a dividend. 
A) The market expects earnings to fall in the future. 
B) The market feels the firm's earnings are very high risk and are willing to pay a premium for them. 
C) The market expects the earnings to rise in the future. 
D) The firm is not paying a dividend.

Question 14

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 15

What are the advantages and disadvantages of exchange traded funds (ETFs)fro trading stocks?

Accepted Answer

The answer of What are the advantages and disadvantages of...

Question 16

What are the objectives of the Securities and Exchange Commission?

Accepted Answer

The answer of What are the objectives of the Securities...

Question 17

(I)Preferred stockholders hold a claim on assets that has priority over the claims of common stockholders. (II)Bondholders hold a claim on assets that has priority over the claims of preferred stockholders.

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 18

A stock's market value will be higher the higher its expected dividend stream is, all else being equal.

Accepted Answer

A) True 
 B)False

Question 19

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 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

Why would a crisis in the subprime mortgage market lead to declining prices in the U.S. equity markets?

The main cause of fluctuations in stock prices is changes in

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

More stock trading in the U.S. occurs in over-the-counter markets rather than on organized exchanges.

Securities not listed on one of the exchanges trade in the over-the-counter market. In this exchange, dealers "make a market" by

A lower than average PE may mean that the market expects earnings to rise in the future.

All stocks pay dividends, as that is the only way an investor can profit from holding stock.

A stock currently sells for $30 per share and pays $1.00 per year in dividends. What is an investor's valuation of this stock if he expects it to be selling for $37 in one year and requires a 12 percent return on equity investments?

(I)Firms issue common stock in far greater amounts than preferred stock. (II)In a given year, the total volume of stock issued is much less than the volume of bonds issued.

What is the role of specialists on a stock exchange?

A basic principle of finance is that the value of any investment is

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

A high price earnings ratio (PE)gives what interpretation?

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

What are the advantages and disadvantages of exchange traded funds (ETFs)fro trading stocks?

What are the objectives of the Securities and Exchange Commission?

(I)Preferred stockholders hold a claim on assets that has priority over the claims of common stockholders. (II)Bondholders hold a claim on assets that has priority over the claims of preferred stockholders.

A stock's market value will be higher the higher its expected dividend stream is, all else being equal.

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

(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 Why Are They so Damaging to the Economy

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

Savings Associations and Credit Unions

Finance Companies

Filters