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 works on the floor of a stock exchange (such as the NYSE), not the NASDAQ. They have a trading license and represent orders on behalf of clients, but they do not work on the NASDAQ trading floor.

Question 2

Matilda Industries pays a dividend of $2.25 per share and is expected to pay this amount indefinitely.If Matilda's equity cost of capital is 12%,which of the following would be expected to be closest to Matilda's stock price?

Accepted Answer

The stock price can be calculated using the dividend discount model for a perpetuity: Price = Dividend / Cost of Capital = $2.25 / 0.12 = $18.75.

Question 3

What are dividend payments?

Accepted Answer

Dividend payments are a part share of the profits or earnings of a company paid to each shareholder on the basis of the number of shares they hold. It is not A, as payments made to a company by investors for a share of the ownership of that company are called investments. It is not B, as incremental increases in the value of the stock held by an investor due to rises in share price are referred to as capital gains. It is not C, as the difference between the original cost price of a share and the price an investor receives when that share is sold is known as capital loss or capital gain depending on the price at which the share was originally purchased and the selling price.

Question 4

Credenza Industries is expected to pay a dividend of $1.20 at the end of the coming year.It is expected to sell for $62.00 at the end of the year.If its equity cost of capital is 8%,what is the expected capital gain from the sale of this stock at the end of the coming year?

Accepted Answer

The expected capital gain is calculated as the expected selling price minus the current price. First, calculate the current price using the dividend discount model: Current Price = (Dividend + Selling Price) / (1 + Equity Cost of Capital) = ($1.20 + $62.00) / 1.08 = $58.52. The expected capital gain is $62.00 - $58.52 = $3.48.

Question 5

Jumbuck Exploration has a current stock price of $2.00 and is expected to sell for $2.10 in one year's time,immediately after it pays a dividend of $0.26.Which of the following is closest to Jumbuck Exploration's equity cost of capital?

Accepted Answer

The equity cost of capital can be calculated using the formula: (Dividend + (Future Price - Current Price)) / Current Price. Here, it is ($0.26 + ($2.10 - $2.00)) / $2.00 = 0.18 or 18%.

Question 6

Which of the following situations is a potential source of cash flows for a shareholder of a certain stock?
I.The investor may be able to sell the shares at a future date.
II.The firm in which the shares are held might pay out cash to shareholders in the form of dividends.
III.The firm in which the shares are held might increase the value of its shares by reducing the total number of shares outstanding.

Accepted Answer

Option I is true because shareholders can sell their shares and receive cash in return. Option II is accurate because a company may decide to pay dividends to its shareholders in the form of cash payments. Option III is valid because a corporation can raise the value of its outstanding shares by reducing their total number, making each share more valuable. Therefore, options I and II are correct, but option III is incorrect. As a result, option C is the correct answer.

Question 7

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

Looking at the "52 Week Range" column, we can see that the highest price the stock has traded at in the last 12 months is $35.29.

Question 8

A "round lot" consists of how many shares?

Accepted Answer

A round lot refers to a standard trading unit that consists of 100 shares of a stock. Therefore, the correct answer is C.

Question 9

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 and it is indicated in the top left corner of the figure.

Question 10

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

The type of order described is a limit order, where the buyer specifies the maximum price they are willing to pay for the stock. A maximum order is not a recognized type of order, a floor order specifies the minimum price the seller is willing to sell the stock for, and a market order is where the buyer is willing to purchase the stock at the current market price.

Question 11

OwenInc has a current stock price of $14.50 and is expected to pay a $0.85 dividend in one year.If OwenInc's equity cost of capital is 12%,what price would OwenInc's stock be expected to sell for immediately after it pays the dividend?

Accepted Answer

The correct answer is D.The expected stock price after the dividend is paid is the current stock price minus the dividend. So, $14.50 - $0.85 = $13.65.

Question 12

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 drops sharply in March 2008, which is the most likely month when the Phase III clinical trial failure was announced.

Question 13

The Busby Corporation had a share price at the start of the year of $26.20,paid a dividend of $0.56 at the end of the year,and had a share price of $29.00 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

The answer of The Busby Corporation had a share price...

Question 14

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

Question 15

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

Accepted Answer

This statement is true. Shares of stock represent ownership in a corporation and often entitle the shareholder to a portion of the company's profits through dividend payments.

Question 16

A stock is bought for $22.00 and sold for $26.00 one year later,immediately after it has paid a dividend of $1.50.What is the capital gain rate for this transaction?

Accepted Answer

Capital gain rate is calculated as follows:

Capital gain rate =(selling price - buying price - dividends)/buying price

=($26.00 - $22.00 - $1.50)/$22.00

= 0.18 or 18.18%

Therefore, the capital gain rate for this transaction is 18.18%, which is option D.

Question 17

Use the figure for the question(s)below. 
-The above screen shot from Google Finance shows basic stock information for PepsiCo.If you owned 2000 shares of PepsiCo for the period shown,how much would you have earned in dividend payments?

Accepted Answer

The answer of Use the figure for the question(s)below. 
-The...

Question 18

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 $22.40,and Coolibah's equity cost of capital is 16%,what price would you expect Coolibah's stock to sell for at the end of three years?

Accepted Answer

The answer of Coolibah Holdings is expected to pay dividends...

Question 19

What role do dividends play in stock investing?

Accepted Answer

The answer of What role do dividends play in stock...

Question 20

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 also known as the Dividend Discount Model, which calculates the present value of future cash flows (dividends and the sale price) to determine the value of a stock.

Quiz 7: Stock Valuation