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Exam 8: Stock Valuation

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Question 1

Multiple Choice

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Upper Crust Bakers just paid an annual dividend of $2.80 a share and is expected to increase that amount by 4 percent per year. If you are planning to buy 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 11.50 percent at the time of your purchase?

A) $37.33
B) $38.16
C) $38.83
D) $40.38
E) $42.00

F) B) and E)
G) A) and B)

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D

Question 2

Multiple Choice

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Which one of the following transactions occurs in the primary market?

A) purchase of 500 shares of GE stock from a current shareholder
B) gift of 100 shares of stock to a charitable organization
C) gift of 200 shares of stock by a mother to her daughter
D) a purchase of newly issued stock from AT&T
E) IBM's purchase of GE stock

F) A) and B)
G) All of the above

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Question 3

Multiple Choice

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An individual on the floor of the NYSE who owns a trading license and buys and sells for his or her personal account is called a:

What are the primary differences and similarities between NASDAQ and the NYSE?

Which of the following apply to a specialist who trades on the floor of the NYSE? I. provides liquidity for an individual security II. partially being replaced by SuperDOT III. pays an annual fee for a trading license IV. acts as a dealer

You are the sole shareholder of a small corporation. Presently, you wish to diversify your holdings and thus want to sell a portion of your shares but do not want to incur the costs associated with SEC filings. Which one of the following markets, if any, might be conducive to this sale?

Callander Enterprises stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will occur in which one of the following markets?

Combined Communications is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 15 percent a year for the next 4 years and then decreasing the growth rate to 3.5 percent per year. The company just paid its annual dividend in the amount of $0.20 per share. What is the current value of one share of this stock if the required rate of return is 15.5 percent?

Which one of the following is an underlying assumption of the dividend growth model?

An agent who maintains an inventory from which he or she buys and sells securities is called a:

You own 600 shares of a NASDAQ listed stock that you wish to sell. Which of the following are options available to you for this purpose? I. sell the shares to a dealer at the dealer's bid price II. sell directly to another individual via an ECN III. offer the shares yourself on NASDAQ via an ECN IV. have a broker offer the shares for sale on the NYSE

Morristown Industries has an issue of preferred stock outstanding that pays a $13.25 dividend every year in perpetuity. What is the required return if this issue currently sells for $80 per share?

Marie owns shares of Deltona Productions preferred stock which she says provides her with a constant 14.3 percent rate of return. The stock is currently priced at $45.45 a share. What is the amount of the dividend per share?

Which one of the following statements related to the NYSE is correct?

The owner of one of the 1,366 trading licenses for the NYSE is called a:

You want to purchase some shares of Green World stock but need a 15 percent rate of return to compensate for the perceived risk of such ownership. What is the maximum you are willing to spend per share to buy this stock if the company pays a constant $0.90 annual dividend per share?

Which one of the following rights is never directly granted to all shareholders of a publicly-held corporation?

Electronics, Inc. common stock returned a nifty 22.68 percent rate of return last year. The dividend amount was $0.25 a share which equated to a dividend yield of 0.84 percent. What was the rate of price appreciation for the year?

Explain why small shareholders should prefer cumulative voting over straight voting.

Winston Co. has a dividend-paying stock with a total return for the year of -6.5 percent. Which one of the following must be true?