Question 1

The interest payment on a bond is called

Accepted Answer

The interest payment on a bond is called the coupon payment.

Question 2

When you buy newly-issued shares of Google stock,this transaction takes place in the

Accepted Answer

The primary market is where newly-issued securities (such as stocks) are bought directly from the issuing company. In this case, when buying newly-issued shares of Google stock, the transaction takes place in the primary market. The bond market is for buying and selling bonds, not stocks. The secondary market is where previously-issued securities are bought and sold, so it does not apply to buying newly-issued shares. A bear market is a period of declining prices for securities, but it is not a specific market where transactions take place.

Question 3

When Internet coupon site Groupon sold stock to the public for the first time following its IPO in November 2011,it did so through the NASDAQ market.This was an example of Groupon raising funds through

Accepted Answer

Groupon's sale of stock through the NASDAQ market is an example of raising funds through a financial market. The NASDAQ is a stock exchange where companies can issue and sell shares of their stock to investors in exchange for capital.

Question 4

What is a primary market?

Accepted Answer

A primary market is where newly issued claims, such as stocks or bonds, are sold directly by the issuing company to initial buyers. This is different from a secondary market, where previously issued claims are sold between investors. Therefore, option C is the correct answer as it defines the primary market.

Question 5

Total dividend payments plus retained earnings divided by outstanding stock shares equals

Accepted Answer

This calculation gives us the earnings per share (EPS) of the company. Dividend payments and retained earnings represent the profits that the company has generated, and dividing that by the outstanding shares gives us the EPS, which is a key metric for investors to evaluate the company's profitability. Option A is incorrect because the price-earnings ratio is calculated by dividing the market price of a share by its earnings per share. Option C is incorrect because dividend yield is calculated by dividing the annual dividend per share by the stock's price. Option D is incorrect because the year-to-date percentage change is a measure of the stock's price performance over a specific period of time.

Question 6

In 2011,the dividend yield on Abercrombie & Fitch (ANF)stock fell from a high of 1.39% in January to 0.96% in July.Which of the following would have generated that result?

Accepted Answer

The dividend yield is calculated as the annual dividend per share divided by the stock price. A decrease in the dividend would lower the dividend yield, assuming the stock price remains constant or does not decrease proportionally.

Question 7

What do the highest stock price and the lowest stock price over the previous year indicate?

Accepted Answer

The highest and lowest stock prices over the previous year indicate how much the market price of the stock has fluctuated over that period of time, which is a measure of the stock's volatility. It does not provide information on the current market price, price-earnings ratio, or dividend yield.

Question 8

Dividing the dividend payment by the stock's closing market price determines the

Accepted Answer

Dividing the dividend payment by the stock's closing market price determines the dividend yield.

Question 9

If a corporate bond with a face value of $5,000 pays yearly coupon payments of $100,what is the coupon rate?

Accepted Answer

The answer of If a corporate bond with a face...

Question 10

When an investor buys a corporate bond,

Accepted Answer

When an investor buys a corporate bond, the principal of the bond is a loan to the corporation. This means that the investor is lending money to the corporation and will earn interest on that loan. The investor does not become part owner of the corporation and the interest earned does not represent limited liability in the company. The face value of the bond may be different from what the investor paid for the bond depending on market conditions.

Question 11

If a corporation earns a profit,how do owners of the firm share in the profit?

Accepted Answer

Owners of the firm, also known as shareholders, receive a portion of the profit through dividend payments on the shares of the firm's stock.

Question 12

If a corporation goes bankrupt,which of the following has first claim on the firm's assets?

Accepted Answer

Bondholders have a higher claim on a bankrupt corporation's assets because they are creditors who lent money to the corporation and are entitled to repayment before stockholders. Employees may be entitled to some compensation, but their claims are typically lower priority than bondholders. The state where the corporation is chartered does not have a claim on the assets.

Question 13

What happens in the secondary market?

Accepted Answer

The secondary market refers to the buying and selling of already issued claims or securities, such as stocks or bonds, from one investor to another. These transactions do not involve the borrowing firm directly, and the funds exchanged go to the investor who sold the securities rather than to the firm.

Question 14

One of the most widely followed stock indexes in the United States is the Dow Jones Industrial Average.This index represents

Accepted Answer

The Dow Jones Industrial Average represents the stock prices of 30 large U.S. corporations.

Question 15

You have a bond that pays $60 per year in coupon payments.Which of the following would result in an increase in the price of your bond?

Accepted Answer

A decrease in the coupon payments on newly-issued bonds would make your bond with a $60 coupon payment more valuable by comparison, as it would offer a higher yield than new bonds with lower coupon payments. This would increase the demand for your bond and drive up its price.

Question 16

In November 2011,General Motors (GM)posted a price-earnings ratio of 4.73.If the price of the stock at that time was $23 per share,which of the following must have been true?

Accepted Answer

The price-earnings ratio is calculated by dividing the stock price by the earnings per share. Therefore, earnings per share can be calculated as: 
price-earnings ratio = stock price / earnings per share 
4.73 = 23 / earnings per share 
earnings per share = 23 / 4.73 = 4.86 
Therefore, choice B (GM's earnings per share was $4.86) must have been true. None of the other choices can be determined from the given information.

Question 17

Dividing the current market price of a stock by the firm's earnings per share gives the firm's

Accepted Answer

Dividing the current market price of a stock by the firm's earnings per share gives the firm's price-earnings ratio.

Question 18

Which of the following is part of the secondary market?

Accepted Answer

All three options - New York Stock Exchange, over-the-counter market, and NASDAQ - are part of the secondary market. The secondary market refers to the buying and selling of securities that have already been issued, as opposed to the primary market where new securities are issued. The secondary market provides liquidity for investors to buy and sell securities, and exchanges and over-the-counter markets are the primary venues for such trades.

Question 19

The profits a corporation keeps to finance future expansion are known as

Accepted Answer

Retained earnings are the profits that a corporation keeps to reinvest in the company for future growth and expansion. Preferred stock is a type of stock that pays dividends before common stock and has priority in the event of bankruptcy, but it does not represent profits kept for future expansion. Dividends are profits that are distributed to shareholders, not kept by the corporation. Capital gains are the profits earned from selling an asset, such as stock or property, at a higher price than it was purchased for, it is not related to future expansion.

Question 20

When the coupon rate on newly issued bonds decreases relative to older,outstanding bonds,what happens?

Accepted Answer

The answer of When the coupon rate on newly issued...

Quiz 6: Firms, the Stock Market, and Corporate Governance