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

5.An investor shorted 100 shares of a retail banking firm at a price of $80 per share. The investor received a $2 dividend before closing out the short position when the shares were priced at $50. The investor's gain is closest to:

a. $28.

b. $30.

c. $2,800.

d. $3,000.