Chapter 07 - Equity Markets and Stock Valuation
Chapter 07
Equity Markets and Stock Valuation
Multiple Choice Questions
1. What is the name given to the model that computes the present value of a stock by dividing next year's annual dividend amount by the difference between the discount rate and the rate of change in the annual dividend amount? A. Stock pricing model B. Equity pricing model C. Capital gain model D. Dividend growth model E. Present value model
2. The dividend yield is defined as:
A. the current annual cash dividend divided by the current market price per share. B. the current annual cash dividend divided by the current book value per share. C. next year's expected cash dividend divided by the current market price per share. D. next year's expected cash dividend divided by the current book value per share.
E. next year's expected cash dividend divided by next year's expected market price per share.
3. The capital gains yield equals which one of the following? A. Total yield
B. Current discount rate C. Market rate of return D. Dividend yield
E. Dividend growth rate
4. Which one of the following types of securities has no priority in a bankruptcy proceeding? A. Convertible bond B. Senior debt C. Common stock D. Preferred stock E. Straight bond
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Chapter 07 - Equity Markets and Stock Valuation
5. Mary owns 100 shares of stock. Each share entitles her to one vote per open seat on the board of directors. Assume there are 3 open seats in the current election and Mary casts all 300 of her votes for a single candidate. What is the term used to describe this type of voting? A. Proxy B. Aggregate C. Cumulative D. Straight E. Condensed
6. There are two open seats on the board of directors. If two separate votes occur to elect the new directors, the firm is using a type of voting that is best described as _____ voting. A. simultaneous B. straight C. proxy
D. cumulative E. sequential
7. Kate could not attend the last shareholders meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which one of the following terms is used to describe the method by which Kate's shares were voted? A. Straight B. Cumulative C. Consent-form D. Proxy E. In absentia
8. Dividends are best defined as: A. cash payments to shareholders.
B. cash payments to either bondholders or shareholders. C. cash or stock payments to shareholders.
D. cash or stock payments to either bondholders or shareholders. E. distributions of stock to current shareholders.
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Chapter 07 - Equity Markets and Stock Valuation
9. Which one of the following generally pays a fixed dividend, receives first priority in dividend payment, and maintains the right to a dividend payment, even if that payment is deferred?
A. Cumulative common B. Noncumulative common C. Noncumulative preferred D. Cumulative preferred E. Senior common
10. Newly issued securities are sold to investors in which one of the following markets? A. Proxy
B. Stated value C. Inside D. Secondary E. Primary
11. What is the market called that allows shareholders to resell their shares to other investors? A. Primary B. Proxy C. Secondary D. Inside E. Initial
12. An agent who buys and sells securities from inventory is called a: A. floor trader. B. dealer.
C. commission broker. D. broker.
E. floor broker.
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Chapter 07 - Equity Markets and Stock Valuation
13. A broker is an agent who:
A. trades on the floor of an exchange for himself or herself. B. buys and sells from inventory.
C. offers new securities for sale to dealers only. D. who is ready to buy or sell at any time. E. brings buyers and sellers together.
14. Any person who owns a license to trade on the NYSE is called a: A. dealer.
B. floor trader. C. specialist. D. member. E. proxy.
15. A person who executes customer orders to buy and sell securities on the floor of the NYSE is called a: A. floor trader. B. specialist. C. runner.
D. commission broker. E. market maker.
16. A specialist is a(n):
A. employee who executes orders to buy and sell for clients of his or her brokerage firm. B. individual who trades on the floor of an exchange for his or her personal account. C. NYSE member who functions as a dealer for a limited number of securities. D. broker who buys and sells securities from a market maker. E. trader who only deals with primary offerings.
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Chapter 07 - Equity Markets and Stock Valuation
17. An individual who executes buy and sell orders on the floor of an exchange for a fee is called a:
A. floor broker. B. specialist. C. floor trader. D. proxy.
E. flow specialist.
18. The electronic system that transmits buy and sell orders directly to a specialist on the floor of the NYSE is called: A. NASDAQ. B. SuperDOT. C. TICKER. D. ECN.
E. ORDFLOW.
19. The owner of a trading license who trades on the floor of the NYSE for his or her personal account is called a(n): A. specialist.
B. independent broker. C. floor trader.
D. stand-alone agent. E. dealer.
20. The stream of customer instructions to buy and sell securities is called the: A. order flow. B. market maker. C. execution stream. D. operations flow. E. buyer's stream.
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