1. A firm generates stable earnings over the long term but has recently enjoyed surging short term profitability. This firm pays a modest $0.50 per share annual dividend and expects profitability to return to its sustainable level over the next few months. This firm will most likely:

a. Increase its annual dividend payment.

b. Announce a special dividend.

c. Initiate a dividend reinvestment plan.

d. Split its shares.

2. The board of directors of a firm with $100 in net income announces it will pay a $20 dividend next week. The firm's retention ratio is closest to: a. 10%. b. 20%. c. 80%. d. 100%

3. Which of the following statements regarding stock market indexes is most accurate?

a. A price-weighted index requires updating the divisor to reflect changes in outstanding shares of the composite firms.

b. A market cap-weighted index is impacted by stock splits and stock dividends.

c. An equal-weighted index is computed as the average of the dividend payments made by the composite firms.

d. The performance of a price-weighted index is most influenced by lower priced stocks