Deck 9: Picking the Equity Players

Question 1

The three kinds of dividends firms pay are

A) stock, cash, and property
B) stock, special, and regular
C) cash, special, and regular
D) monthly, quarterly, and year-end

Answer 1

stock, cash, and property

Question 2

Securities held on your behalf by a broker are

A) held in a margin account
B) held in a street name
C) registered in your name with the issuing company
D) ineligible for corporate dividends

Answer 2

held in a street name

Question 3

Which of the following is an odd lot?

A) 100 shares
B) 500 shares
C) 11,000 shares
D) 11,300 shares

Answer 3

11,300 shares

Question 4

A spin-off is similar to a

A) stock split
B) stock dividend
C) property dividend
D) cash dividend

Question 5

Rights are associated with

A) new stock issues
B) new bond issues
C) any new security issue
D) newly incorporated firms

Question 6

The third date in the dividend payment chronology is the

A) date of declaration
B) ex-dividend date
C) date of record
D) date of payment

Question 7

Stock prices tend to fall on the

A) date of declaration
B) ex-dividend date
C) date of record
D) date of payment

Question 8

A company's date of record for a dividend is September 15. Which of the following is most likely to be the ex-dividend date?

A) September 1
B) September 12
C) September 19
D) October 1

Question 9

Dividend growth rates are of primary importance to

A) fundamental analysts
B) technical analysts
C) original analysts
D) chartists

Question 10

A stock's current dividend is $4.56; ten years ago it was $2.88. What has been the average annual dividend growth rate?

A) 4.0%
B) 4.7%
C) 5.6%
D) 6.6%

Question 11

A stock sells for $28; its current dividend is $1.00, and its dividend growth rate is 4.4%. What is the shareholder's required rate of return?

A) 6.6%
B) 7.7%
C) 8.1%
D) 8.8%

Question 12

The dividend growth rate should be calculated via the _____ mean.

A) geometric
B) arithmetic
C) harmonic
D) standardized

Question 13

To illustrate why dividends do not matter, the text used a _____ example.

A) used car
B) new car
C) paint can
D) shoebox

Question 14

Dividend policy is associated with which of the following subfields within finance?

A) Signaling
B) Optimum capital structure
C) Market anomalies
D) Technical analysis

Question 15

A stock split in which shareholders hold fewer shares after the split is a

A) forward split
B) direct split
C) indirect split
D) reverse split

Question 16

The primary motivation for a stock split is usually a desire to

A) reduce the stock price
B) reduce the dividend requirement
C) reduce the number of shares outstanding
D) reduce earnings per share

Question 17

A 25% stock dividend is equivalent to a

A) 2 for 1 stock split
B) 1 for 2 stock split
C) 4 for 5 stock split
D) 5 for 4 stock split

Question 18

Blue chip stocks generally

A) have a long uninterrupted history of dividend payments
B) are not growth stocks
C) have high dividend payout ratios
D) have high price-earnings ratios

Question 19

A steel company is probably a _____ stock.

A) blue chip
B) income
C) defensive
D) cyclical

Question 20

A retail food company is a good example of a _____ stock.

A) blue chip
B) income
C) defensive
D) cyclical

Question 21

Which of the following pairs of stock categories are mutually exclusive?

A) Income, blue chip
B) Growth, penny
C) Income, defensive
D) Cyclical, defensive

Question 22

If a stock symbol contains a period, this means

A) it trades over the counter
B) there is more than one class of stock
C) it is a preferred stock
D) it trades on the American Stock Exchange

Question 23

The correct sequence in the dividend payment chronology is the

A) date of record, date of declaration, ex-dividend date, date of payment
B) date of declaration, date of record, ex-dividend date, date of payment
C) date of declaration, date of record, date of payment, ex-dividend date
D) date of declaration, ex-dividend date, date of record, date of payment

Question 24

A company just paid a dividend of $2.00 per share. Five years ago, the company paid a dividend of $1.00 per share. What is the average growth rate in dividends?

A) 8%
B) 10%
C) 15%
D) 20%

Question 25

A company just paid a dividend of $3.00 per share. Four years ago, the company paid a dividend of $2.00 per share. You expect the dividend payment to continue growing at this same rate indefinitely into the future. If the required rate of return on equity is 14% per year, what would be a fair price for this stock today?

A) 27.09
B) 48.70
C) 90.09
D) 99.65

Question 26

A company plans to pay a dividend of $2.00 next year and expects the dividend will grow 6% per year indefinitely into the future. If the required rate of return on equity is 12%, what would be a fair price for this stock today?

A) 27.33
B) 33.33
C) 35.33
D) 43.33

Question 27

A company just paid a dividend of $1.50 and expects the dividend will grow 7% per year indefinitely into the future. If the required rate of return on equity is 13%, what would be a fair price for this stock today?

A) 25.00
B) 26.75
C) 30.25
D) 35.75

Question 28

A company plans to pay a dividend of $1.40 next year, $1.60 the following year, and $1.80 three years from now. Thereafter, it is expected that the dividend will grow 5% per year indefinitely into the future. If the required rate of return is 14%, what would be a fair price for this stock today?

A) 15.39
B) 17.85
C) 21.00
D) 22.80