Question 1

Which of the following is not true about American Depository Receipts (ADRs)?

Accepted Answer

A)  ADRs are claims issued by U.S. financial intermediaries (FIs) against shares in foreign companies, with the shares held in custody by the FIs for investors. 
B)  ADRs are issued in the U.S. and are denominated in U.S. dollars. All cash flows to the investor are in dollars. 
C)  An ADR enhances a company's visibility, status and profile in the U.S. and internationally among investors. 
D)  An ADR decreases the foreign firm's U.S. liquidity (and potentially total global issuer liquidity).

Question 2

The capital market is allocationally efficient if

Accepted Answer

A)  funds are channeled to their most productive use. 
B)  market makers such as dealers and brokers are making reasonable, not excessive rates of return. 
C)  only if informational and operational market efficiencies are high. 
D)  both a and C

Question 3

Which of the following is not an example of capital market securities?

Accepted Answer

A)  common stocks 
B)  convertible bonds 
C)  commercial paper 
D)  mortgages

Question 4

The federal legislation that made the Securities and Exchange Commission responsible for the broad oversight of securities markets was

Accepted Answer

A)  The Securities Act of 1933. 
B)  The Securities Exchange Act of 1934. 
C)  The Investment Company Act of 1940. 
D)  The National Securities Company Act of 1932. 
E)  none of the above.

Question 5

The over-the-counter market trades ______ stocks than exchanges, and exchanges tend to list ________ companies.

Accepted Answer

A)  less; smaller 
B)  less; larger 
C)  more; larger 
D)  more; smaller

Question 6

At the beginning of year one, the stock market index had a value of 225.4. Two years later the value was 298. What was the average annual rate of return on the index portfolio?

Accepted Answer

A)  28.6% 
B)  30.0% 
C)  36.3% 
D)  15.0% 
E)  14.3%

Question 7

A wide spread between the bid and ask quotes of a security dealer may represent weak operational market efficiency.

Accepted Answer

A) True 
 B)False

Question 8

The primary federal regulator of stock markets is

Accepted Answer

A)  the Federal Reserve. 
B)  the Federal National Securities Corporation. 
C)  the National Association of Securities Dealers (NAS
D) . 
D)  the Securities Investor Protection Corporation. 
E)  the Securities and Exchange Commission.

Question 9

Which of the following statements is not true?

Accepted Answer

A)  Electronically linking equity dealers and exchange markets is slowly leading toward a national market system. 
B)  Electronically linking international markets has created 24-hour trading opportunities for some stocks. 
C)  U. S. stock exchanges have extended (after hours) their normal trading hours in which shares are traded electronically, linking U. S. with the hours of international markets. 
D)  All of the above statements are true.

Question 10

Primary capital market securities provide marketability and possibilities for investors to alter the riskiness of their portfolios.

Accepted Answer

A) True 
 B)False

Question 11

The Dow Jones Industrial Average is a price-weighted index.

Accepted Answer

A) True 
 B)False

Question 12

A shareholder in a troubled corporation is not likely to lose his/her

Accepted Answer

A)  money invested in the stock. 
B)  house. 
C)  dividends declared. 
D)  par value.

Question 13

Which of the following terms is associated with secondary equity markets?

Accepted Answer

A)  seasoned equity offering 
B)  initial public offering 
C)  underwriter's spread 
D)  bid-ask spread 
E)  shelf registration

Question 14

Which of the following market participants functions in the primary equity markets?

Accepted Answer

A)  broker 
B)  specialist 
C)  underwriter 
D)  dealer 
E)  none of the above

Question 15

The slope of the security market line is

Accepted Answer

A)  the market risk premium. 
B)  beta 
C)  the risk-free rate 
D)  the return on the market portfolio. 
E)  none of the above

Question 16

Preferred stockholders have a claim junior to common stock but senior to bondholders.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following terms is not associated with common stock?

Accepted Answer

A)  contractual 
B)  residual 
C)  ownership 
D)  limited liability

Question 18

What is the required rate of return on a stock if the risk-free rate is 7%, the return on the market portfolio is 15%, and the beta is 1.5?

Accepted Answer

A)  12 % 
B)  19% 
C)  22.5% 
D)  29.5% 
E)  33%

Question 19

Suppose Zina & Co. has an expected dividend next year of $5.6 per share, a growth rate of dividends of 10 percent, and a required return of 20%. The value of a share of common stock is.

Accepted Answer

A)  $22.40 
B)  $28.00 
C)  $18.67 
D)  $56.00
ESSAY QUESTIONS

Question 20

The security market line shows

Accepted Answer

A)  the amount of risk demanded for each unit of return. 
B)  the return for each level of risk. 
C)  the sum of the systematic and unsystematic risks. 
D)  the risk/return tradeoff over time.

Exam 10: Equity Markets

Which of the following is not true about American Depository Receipts (ADRs) ?

The capital market is allocationally efficient if

Which of the following is not an example of capital market securities?

The federal legislation that made the Securities and Exchange Commission responsible for the broad oversight of securities markets was

The over-the-counter market trades stocks than exchanges, and exchanges tend to list __ companies.

At the beginning of year one, the stock market index had a value of 225.4. Two years later the value was 298. What was the average annual rate of return on the index portfolio?

A wide spread between the bid and ask quotes of a security dealer may represent weak operational market efficiency.

The primary federal regulator of stock markets is

Which of the following statements is not true?

Primary capital market securities provide marketability and possibilities for investors to alter the riskiness of their portfolios.

The Dow Jones Industrial Average is a price-weighted index.

A shareholder in a troubled corporation is not likely to lose his/her

Which of the following terms is associated with secondary equity markets?

Which of the following market participants functions in the primary equity markets?

The slope of the security market line is

Preferred stockholders have a claim junior to common stock but senior to bondholders.

Which of the following terms is not associated with common stock?

What is the required rate of return on a stock if the risk-free rate is 7%, the return on the market portfolio is 15%, and the beta is 1.5?

Suppose Zina & Co. has an expected dividend next year of $5.6 per share, a growth rate of dividends of 10 percent, and a required return of 20%. The value of a share of common stock is.

The security market line shows