Chapter 13

Question 1

(I) A share of common stock in a firm represents an ownership interest in that firm. 
(II) A share of preferred stock is as much like a bond as it is like common stock. 
A)
(I) is true, (II) false. 
B)
(I) is false, (II) true. 
C)
Both are true. 
D)
Both are false.

Answer 1

C

Question 2

To list on the NYSE, a firm must
A)
have earnings of at least $10 million per year.
B)
have at least $500 million in outstanding debt. C)
have a total of $100 million in market value.
D)
meet all of the above requirements.
E)
meet A and C of the above requirements.

Answer 2

E

Question 3

Which of the following statements is false regarding Electronic Communications Networks (ECNs)?
A)
Archipelago and Instinet are two examples of ECNs.
B)
Competition from ECNs has forced NASDAQ to cut its fees.
C)
Traders benefit from lower trading costs and faster service.
D)
ECNs allow institutional investors, but not individuals, to trade after hours.

Answer 3

D

Question 4

In the generalized dividend valuation model, a stock’s value depends only on
A)
its future dividend payments and its future price.
B)
its future dividend payments and the required return on equity.
C)
its future price and the required return on investments on equity.
D)
its future dividend payments.

Answer 4

B

Question 5

Holding other things constant, a stock's value will be highest if its dividend growth rate is 
A) 
15%. 
B) 
10%. 
C) 
5%. 
D) 
2%.

Answer 5

A

Question 6

The PE ratio approach to valuing stock is especially useful for valuing 
A) 
privately held firms. 
B) 
firms that don't pay dividends. 
C) 
both A and B of the above. 
D) 
neither A nor B of the above.

Answer 6

C