Question 1

A floor broker is a person at the NASDAQ with a trading license who represents orders on the floor.

Accepted Answer

A floor broker is a person at the New York Stock Exchange (NYSE) with a trading license who represents orders on the floor. The NASDAQ does not have a traditional trading floor, so there are no floor brokers there. Instead, NASDAQ market makers execute trades electronically using computer systems.

Question 2

Use the figure for the question(s)below. 
-The above screen shot from Google Finance shows the basic stock information for Logitech International SA (USA). What is Logitech International SA (USA)'s ticker symbol?

Accepted Answer

The ticker symbol for Logitech International SA (USA) is LOGI, which is shown in the top left corner of the figure.

Question 3

What role do dividends play in stock investing?

Accepted Answer

Dividends are periodic payments given out by the firm to shareholders. It is not necessary for a firm to declare dividends, but mature firms tend to pay out dividends.

Question 4

Credenza Industries is expected to pay a dividend of $1.70 at the end of the coming year. It is expected to sell for $62 at the end of the year. If its equity cost of capital is 9%, what is the expected capital gain from the sale of this stock at the end of the coming year?

Accepted Answer

A) P₀using the capital gain rate formula = ($1.70 + $62) / (1 + 0.09) = $58.44; Capital gain = P₁ - P₀ = $62 - $58.44 = $3.56

Question 5

The Busby Corporation had a share price at the start of the year of $26.10, paid a dividend of $0.59 at the end of the year, and had a share price of $29.50 at the end of the year. Which of the following is closest to the rate of return of investments in companies with equal risk to The Busby Corporation for this period?

Accepted Answer

D) $29.50 + $0.59 - $26.10 = $3.99;
$3.99 / $26.10 = 15.29%; rounded to 15%

Question 6

You placed an order to purchase stock where you specified the maximum price you were willing to pay. This type of order is known as a ________.

Accepted Answer

A limit order is an order to buy or sell a stock at a specific price or better. In this case, the maximum price the buyer is willing to pay is specified, which makes it a limit order. A maximum order is not a commonly used term in trading, and a floor order is an order placed on the trading floor of an exchange, which is not relevant in an online trading scenario. A market order is an order to buy or sell a stock at the current market price, without specifying a particular price.

Question 7

A "round lot" consists of how many shares?

Accepted Answer

A "round lot" refers to a block of shares that is a multiple of 100. Therefore, the correct answer is 100 shares (option C). Options A and B are too small to be considered a round lot and Option D is too large.

Question 8

Use the figure for the question(s)below. 
-The above screen shot from Google Finance shows the basic stock information for Kraft Foods Inc. after the close of the stock market on May 30, 2008. What is the highest that the stock has traded at in the last 12 months?

Accepted Answer

The highest point on the 12-month graph is $35.29, which can be seen on the y-axis. None of the other prices listed reach that high.

Question 9

Use the figure for the question(s)below. 
-The above screen shot above from Google Finance shows the price history of Progenics, a pharmaceutical company. In the time period shown, Progenics released information that an intravenously-administered formulation of their leading product had failed in a Phase III clinical trial. In which of the months shown in the price history is this most likely to have occurred?

Accepted Answer

The price of Progenics stock dropped significantly in March 2008, which is most likely when the company released information that an intravenously-administered formulation of their leading product had failed in a Phase III clinical trial.

Question 10

What are dividend payments?

Accepted Answer

Dividend payments are a share of the profits paid to each shareholder on the basis of the number of shares they hold. It is a distribution of earnings to shareholders as a reward for investing in the company. Option A describes the process of buying shares and Option B describes a rise in share price. Option C describes the concept of capital gains.

Question 11

The ownership in a corporation is divided into shares of stock, which carry rights to a share in the profits of the firm through future dividend payments.

Accepted Answer

This statement is true. In a corporation, ownership is divided into shares of stock, and shareholders own a portion of the company in proportion to the number of shares they hold. This ownership entitles them to a share of the profits through dividends, which are payments made to shareholders from the company's earnings.

Question 12

The above screen shot from Google Finance shows basic stock information for PepsiCo. If you owned  of PepsiCo for the period shown, how much would you have earned in dividend payments?

Accepted Answer

The answer of  The above screen shot from Google...

Question 13

A stock is bought for $23.00 and sold for $27.00 one year later, immediately after it has paid a dividend of $1.50. What is the capital gain rate for this transaction?

Accepted Answer

D) 11ea84dc_f561_2fd3_9a63_759c102b0fcb_TB1316_00_TB1316_00

Question 14

Coolibah Holdings is expected to pay dividends of $1.20 every six months for the next three years. If the current price of Coolibah stock is $22.60, and Coolibah's equity cost of capital is 18%, what price would you expect Coolibah's stock to sell for at the end of three years?

Accepted Answer

A) Using a financial calculator, 11ea84dc_f560_e1ad_9a63_1d94c42b1793_TB1316_11_TB1316_11 , 11ea84dc_f561_08be_9a63_b506dd552baf_TB1316_00_TB1316_00 11ea84dc_f561_08bf_9a63_d510a6445957_TB1316_00_TB1316_00 11ea84dc_f561_08c0_9a63_e9888fb9f17b_TB1316_11_TB1316_11 calculate 11ea84dc_f561_08c1_9a63_8b95b89606fa_TB1316_11_TB1316_11

Question 15

Which of the following will be a source of cash flows for a shareholder of a certain stock?
I. Sale of the shares at a future date
II. The firm in which the shares are held paying out cash to shareholders in the form of dividends
III. The firm in which the shares are held increasing the total number of shares outstanding through a stock split

Accepted Answer

The answer of Which of the following will be a...

Question 16

The Valuation Principle states that the value of a stock is equal to the present value (PV)of both the dividends and future sale price of that stock which the investor will receive.

Accepted Answer

The Valuation Principle is based on the idea that the value of an asset is determined by the present value of all future cash flows it is expected to generate. For stocks, this means the value is determined by the present value of both the dividends and eventual sale price the investor can expect to receive.

Question 17

Owen Inc. has a current stock price of $15.00 and is expected to pay a $0.80 dividend in one year. If Owen's equity cost of capital is 12%, what price would its stock be expected to sell for immediately after it pays the dividend?

Accepted Answer

D) (1 + 0.12) × $15.00 = $16.80;
$16.80 - $0.80 = $16.00

Question 18

Matilda Industries pays a dividend of $2.10 per share and is expected to pay this amount indefinitely. If Matilda's equity cost of capital is 9%, which of the following would be closest to Matilda's stock price?

Accepted Answer

C) PV₀ = $2.10 / 0.09 = $23.33

Question 19

Jumbuck Exploration has a current stock price of $3.00 and is expected to sell for $3.15 in one year's time, immediately after it pays a dividend of $0.28. Which of the following is closest to Jumbuck Exploration's equity cost of capital?

Accepted Answer

C) 11ea84dc_f561_08c2_9a63_5db59d9be40a_TB1316_11_TB1316_11

Question 20

Use the figure for the question(s)below. 
-The above screen shot from Google Finance shows the basic stock information for Logitech International SA (USA)after the close of business on August 22, 2008. What is the difference between the opening and closing price of the stock on this date?

Accepted Answer

C) $26.30 - $26.06 = $0.24

Quiz 7: Stock Valuation