Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

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. A

Question 3

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. C

Question 4

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 5

The Wall Street Journal reports on 23 different indexes in its "Markets Lineup" column.

Accepted Answer

A) True 
 B)False

Question 6

A weakness of the PE approach to valuing stock is that it is

Accepted Answer

A) difficult to estimate the constant growth rate of a firm's dividends. 
B) difficult to estimate the required return on equity. 
C) difficult to predict how much a firm will pay in dividends. 
D) based on industry averages rather than firm-specific factors. 
A) difficult to estimate the constant growth rate of a firm's dividends. 
B) difficult to estimate the required return on equity. 
C) difficult to predict how much a firm will pay in dividends. 
D) based on industry averages rather than firm-specific factors.

Question 7

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 8

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 15 percent?

Accepted Answer

A) $20 
B) $11 
C) $22 
D) $7.33 
E) $4.40 
A) $20 
B) $11 
C) $22 
D) $7.33 
E) $4.40

Question 9

(I)A share of common stock in a firm represents an ownership interest in that firm. (II)A share of preferred stock is as much like a bond as it is like 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 10

The subprime financial crisis led to one of the worst bear markets in the last 50 years. Stock prices likely fell due to

Accepted Answer

A) an increase in required returns on equity investments. 
B) a decline in growth prospects for U.S. companies. 
C) Both A and B are likely reasons. 
D) None of the above are correct. 
A) an increase in required returns on equity investments. 
B) a decline in growth prospects for U.S. companies. 
C) Both A and B are likely reasons. 
D) None of the above are correct.

Question 11

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 12

The Securities and Exchange Commission requires firms to submit various documents to increase the flow of information to investors but does not verify the accuracy of that information.

Accepted Answer

A) True 
 B)False

Question 13

(I)The market price of a security at a given time is the highest value any investor puts on the security. (II)Superior information about a security increases its value by reducing its risk.

Accepted Answer

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

Question 14

About half of new equity issues are preferred stock.

Accepted Answer

A) True 
 B)False

Question 15

How do common stocks differ from preferred stocks?

Accepted Answer

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

Question 16

How do corporate stocks differ from bonds?

Accepted Answer

The answer of How do corporate stocks differ from bonds?...

Question 17

In 2010, 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 18

Which of the following statements is false regarding Electronic Communications Networks (ECNs)?

Accepted Answer

A) Archipelago and Instinet are two examples of ECNs. 
B) Competition from ECNs has forced NASDAQ to cut its fees. 
C) Traders benefit from lower trading costs and faster service. 
D) ECNs allow institutional investors, but not individuals, to trade after hours. 
A) Archipelago and Instinet are two examples of ECNs. 
B) Competition from ECNs has forced NASDAQ to cut its fees. 
C) Traders benefit from lower trading costs and faster service. 
D) ECNs allow institutional investors, but not individuals, to trade after hours.

Question 19

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 20

A share of common stock in a firm represents an ownership interest in that firm and allows stockholders to

Accepted Answer

A) vote. 
B) receive dividends. 
C) receive interest payments. 
D) only A and B of the above. 
A) vote. 
B) receive dividends. 
C) receive interest payments. 
D) only A and B of the above.

Exam 13: The Stock Market

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

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

What is the primary disadvantage of an ETF?

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

The Wall Street Journal reports on 23 different indexes in its "Markets Lineup" column.

A weakness of the PE approach to valuing stock is that it is

The most active stock exchange in the world is the

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 15 percent?

(I)A share of common stock in a firm represents an ownership interest in that firm. (II)A share of preferred stock is as much like a bond as it is like common stock.

The subprime financial crisis led to one of the worst bear markets in the last 50 years. Stock prices likely fell due to

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

The Securities and Exchange Commission requires firms to submit various documents to increase the flow of information to investors but does not verify the accuracy of that information.

(I)The market price of a security at a given time is the highest value any investor puts on the security. (II)Superior information about a security increases its value by reducing its risk.

About half of new equity issues are preferred stock.

How do common stocks differ from preferred stocks?

How do corporate stocks differ from bonds?

In 2010, the NYSE traded ________ shares on an average trading day.

Which of the following statements is false regarding Electronic Communications Networks (ECNs)?

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

A share of common stock in a firm represents an ownership interest in that firm and allows stockholders to

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

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