Question 1

Elections of directors of a corporation are usually held every 5 years.

True

False

Question 2

A firm's common stockholders have the right to elect its directors, who in turn elect the officers who manage the business.

True

False

Question 3

A document giving one person the authority to act for another, typically the power to vote shares of common stock, is known as proxy.

True

False

Question 4

A proxy fight is an attempt by a person or a group to gain control of a firm by getting its stockholders to grant that person or group the authority to vote its shares to replace the current management.

True

False

Question 5

Preemptive rights give the bond holders the right to purchase on a pro rata basis new issues of bonds.

True

False

Question 6

Value of a share of common stock depends on the cash flow it is expected to provide from dividends and interest payments.

True

False

Question 7

A representative investor whose actions reflect the beliefs of people who are trading a stock is known as a marginal investor.

True

False

Question 8

A merger occurs when a person or group succeeds in ousting a firm's management and taking control of a company.

True

False

Question 9

An estimate of a stock's "true" value is also known as its intrinsic value.

True

False

Question 10

When the intrinsic value of a stock is equal to the market price, there is said to be a market equilibrium.

True

False

Question 11

Which of the following is the purpose of preemptive rights?

1. Prevent management from issuing a large number of additional shares and then repurchasing them.

2. Protect shareholders from a dilution of value.

A.

1 only

B.

2 only

C.

both 1 and 2

D.

neither 1 nor 2

Question 12

What the investors expect to be the value of stock given the limited information they have is known as the:

A.

intrinsic value

B.

perceived value

C.

true value

D.

none of the above

Question 13

If XYZ corp. has annual dividend yield of 2.5% and has capital appreciation of 10% in the past year, the company has provided a total return of what amount?

A.

5%

B.

7.5%

C.

10%

D.

12.5%

Question 14

ABC Corp.has estimated value of next year's dividends of $3.00 and constant dividend growth rate of 5%.If the company's expected rate of return is 12%,what is the expectedprice of ABC's shares according to the discounteddividend model?

A.$38.73

B.$42.86

C.$47.52

D.$53.29

Question 15

Which of the following is (are)limitations of the discounted dividend model?

A.the expected growth rate must be less than the required rate of return

B.if the stock does not pay a dividend then the model does not work.

C.the resulting stock price is hypersensitive to the growth rate chosen.

D.all of the above

Question 16

The amount a company spends to purchase land,construct a building,etc.is known as:

A.net operating working capital

B.depreciation

C.capital expenditure

D.amortization

QUESTION 17

Dividends on preferred stock must be paid____________ dividends are paid on the common stock.

A.before

B.after

C.either before or after

D.instead of

Question 18

If the preferred dividend is $7.00 per year and the required rate of return on the preferred stock is 6.5%, what should be the value of the preferred shares?

A.$97.87

B.$100.00

C.$102.35

D.$107.69

QUESTION 19

If a preferred stock with $8annual dividend and 9%required rate has a maturity of 50years,what should be the value of the preferred shares?

A.$89.04

B.$96.85

C.$101.25

D.$107.92

Question 20

The dailymarket price of a stock is determined by:

A.company analysts

B.company executives

C.board of directors

D.marginal investors