Preemption means that stockholders __________ purchase additional shares of stock before any new investors.

• a.)
• are forbidden to
• b.)
• have the option to
• c.)
• are required to
• d.)
• can collectively vote to

Select one way that common stock differs from preferred stock.

• a.)
• Common stock is generally thought to be less risky than preferred stock.
• b.)
• Common stock represents ownership in a company, whereas preferred stock does not.
• c.)
• Common stock may be converted to preferred stock if the holder so chooses.
• d.)
• In the case of bankruptcy, common stockholders are only entitled to assets after preferred stockholders have been compensated.

Select the pairing that is correctly matched.

• a.)
• Preferred stock: usually sold with a fixed dividend attached to it
• b.)
• Common stock: may have a par value assigned to it
• c.)
• Common stock: must be redeemed upon completion of a defined term
• d.)
• Preferred stock: has a residual claim in the case of company liquidation

An investment fund that is created with the objective of mirroring the average performance of a segment of the market is a(n) __________.

• a.)
• mutual fund
• b.)
• hedge fund
• c.)
• index fund
• d.)
• pension fund

Determine the value of a stock with the following variables using the constant growth model:

• Current annual dividend: $1.20 per share
• Required return rate: 8%
• Constant growth rate: 5%
• a.)
• $26
• b.)
• $40
• c.)
• $42
• d.)
• $43.20

Which descriptor relates to the asset-based approach for valuing corporations?

• a.)
• Considers the number of shares outstanding
• b.)
• Relies primarily on share price
• c.)
• Considers the value of a company's resources
• d.)
• Determines the average cost of a unit of company income