Question 1

What are the advantages and disadvantages of Electronic Communications Networks (ECNs)for trading stocks?

Accepted Answer

Electronic Communications Networks (ECNs

Question 2

About 95% of orders to buy or sell on the NYSE are executed using SuperDOT.

Accepted Answer

A) True 
 B)False

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

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 5

(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 6

About half of new equity issues are preferred stock.

Accepted Answer

A) True 
 B)False

Question 7

How do common stocks differ from preferred stocks?

Accepted Answer

The answer of How do common stocks differ from preferred...

Question 8

In the one-period valuation model, a stock's value falls if the ________ rises.

Accepted Answer

A) dividend 
B) expected future price 
C) required return on equity 
D) current price 
A) dividend 
B) expected future price 
C) required return on equity 
D) current price

Question 9

In the one-period valuation model, a stock's value will be higher

Accepted Answer

A) the higher its expected future price is. 
B) the lower its dividend is. 
C) the higher the required return on investments in equity is. 
D) all of the above. 
A) the higher its expected future price is. 
B) the lower its dividend is. 
C) the higher the required return on investments in equity is. 
D) all of the above.

Question 10

What is the role of the required return on equity investments in stock valuation models?

Accepted Answer

The answer of What is the role of the required...

Question 11

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 12

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

Accepted Answer

A) $2.00. 
B) $5.00. 
C) $0.50. 
D) $1.00. 
A) $2.00. 
B) $5.00. 
C) $0.50. 
D) $1.00.

Question 13

The Dow Jones Industrial Average is the broadest and best indicator of the stock market's day-to-day performance.

Accepted Answer

A) True 
 B)False

Question 14

What is the primary disadvantage of an ETF?

Accepted Answer

A) ETFs tend to have lower management fees than comparable index mutual bonds. 
B) ETFs usually have no minimum investment amount. 
C) Investors have to pay a broker commission each time they buy or sell shares. 
D) None of the above are disadvantages of an ETF. 
A) ETFs tend to have lower management fees than comparable index mutual bonds. 
B) ETFs usually have no minimum investment amount. 
C) Investors have to pay a broker commission each time they buy or sell shares. 
D) None of the above are disadvantages of an ETF.

Question 15

A stock currently sells for $25 per share and pays $0.24 per year in dividends. What is an investor's valuation of this stock if she expects it to be selling for $30 in one year and requires a 15 percent return on equity investments?

Accepted Answer

A) $30.24 
B) $26.30 
C) $26.09 
D) $27.74 
A) $30.24 
B) $26.30 
C) $26.09 
D) $27.74

Question 16

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 17

Which of the following is not an advantage of Electronic Communications Networks (ECNs)?

Accepted Answer

A) All unfilled orders are available for review by ECN traders. 
B) Transactions costs are lower for ECN trades. 
C) Trades are made and confirmed faster. 
D) ECNs work well for thinly traded stocks. 
A) All unfilled orders are available for review by ECN traders. 
B) Transactions costs are lower for ECN trades. 
C) Trades are made and confirmed faster. 
D) ECNs work well for thinly traded stocks.

Question 18

According to the Gordon growth model, what is an investor's valuation of a stock whose current dividend is $1.00 per year if dividends are expected to grow at a constant rate of 10 percent over a long period of time and the investor's required return is 11 percent?

Accepted Answer

A) $110 
B) $100 
C) $11 
D) $10 
E) $5.24 
A) $110 
B) $100 
C) $11 
D) $10 
E) $5.24

Question 19

The Gordon growth model assumes that a stock's dividend grows at a constant rate forever.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

Over-the-counter (OTC) markets and organ

Exam 13: The Stock Market

What are the advantages and disadvantages of Electronic Communications Networks (ECNs)for trading stocks?

About 95% of orders to buy or sell on the NYSE are executed using SuperDOT.

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

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

(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.

About half of new equity issues are preferred stock.

How do common stocks differ from preferred stocks?

In the one-period valuation model, a stock's value falls if the ________ rises.

In the one-period valuation model, a stock's value will be higher

What is the role of the required return on equity investments in stock valuation models?

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

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

The Dow Jones Industrial Average is the broadest and best indicator of the stock market's day-to-day performance.

What is the primary disadvantage of an ETF?

A stock currently sells for $25 per share and pays $0.24 per year in dividends. What is an investor's valuation of this stock if she expects it to be selling for $30 in one year and requires a 15 percent return on equity investments?

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?

Which of the following is not an advantage of Electronic Communications Networks (ECNs)?

According to the Gordon growth model, what is an investor's valuation of a stock whose current dividend is $1.00 per year if dividends are expected to grow at a constant rate of 10 percent over a long period of time and the investor's required return is 11 percent?

The Gordon growth model assumes that a stock's dividend grows at a constant rate forever.

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

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

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