Question 1

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 2

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 3

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 4

What is the role of specialists on a stock exchange?

Accepted Answer

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

Question 5

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 6

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 7

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 8

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 9

(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.

Question 10

(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 11

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 12

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

Accepted Answer

A) True 
 B)False

Question 13

In the generalized dividend valuation model, a stock's value depends only on

Accepted Answer

A) its future dividend payments and its future price. 
B) its future dividend payments and the required return on equity. 
C) its future price and the required return on investments on equity. 
D) its future dividend payments. 
A) its future dividend payments and its future price. 
B) its future dividend payments and the required return on equity. 
C) its future price and the required return on investments on equity. 
D) its future dividend payments.

Question 14

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 15

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 16

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 17

Exchange traded funds (ETFs)have which of the following features?

Accepted Answer

A) They are listed and traded as individual stocks on a stock exchange. 
B) They are indexed rather than actively managed. 
C) Their value is based on the underlying net asset value of the stocks held in the index basket. 
D) All of the above. 
A) They are listed and traded as individual stocks on a stock exchange. 
B) They are indexed rather than actively managed. 
C) Their value is based on the underlying net asset value of the stocks held in the index basket. 
D) All of the above.

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

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

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

Exam 13: The Stock Market

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

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?

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

What is the role of specialists on a stock exchange?

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

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

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

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

(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.

(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.

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

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

In the generalized dividend valuation model, a stock's value depends only on

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

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

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

Exchange traded funds (ETFs)have which of the following features?

The main cause of fluctuations in stock prices is changes in

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

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

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

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