Question 1

Which of the following items does NOT usually appear in a National Post common stock quote?

Accepted Answer

The capital gains rate is not typically included in a common stock quote, as it is a taxation issue and not directly related to the stock's performance or value. The other options (B-E) are all commonly included in a stock quote.

Question 2

The stock valuation model that determines the current stock price as the next dividend divided by the (discount rate less the dividend growth rate) is called the:

Accepted Answer

The given formula is a variation of the dividend growth model, as it assumes a constant dividend growth rate. The formula is used to calculate the intrinsic value of a stock based on its expected future dividends.

Question 3

Which of the following does NOT correctly complete this sentence: Preferred stock is much like debt in that ______________.

Accepted Answer

Preferred stock payments are typically taxed differently than debt payments for the issuing firm.

Question 4

Which one of the following statements is correct concerning the differences between preferred and common stock?

Accepted Answer

Preferred shareholders typically do not have voting rights, and common shareholders have priority after creditors in liquidation. Arrearage of preferred dividends must be paid before any additional common dividends. Preferred stock is considered a form of equity, not debt. Therefore, the correct answer is C as common shareholders typically have more control over a corporation than preferred shareholders.

Question 5

The preferred stock of the Pearson Institute pays a constant annual dividend of $3 and sells for $21. You believe the stock will sell for $12 in one year. You must, therefore, believe that the required
Return on the stock will be ____ % ___________ in one year.

Accepted Answer

The required return is calculated as (Dividend + Price Change) / Initial Price. Here, ($3 + ($12 - $21)) / $21 = ($3 - $9) / $21 = -$6 / $21 = -28.57%. However, since the stock is expected to sell for less, the required return must be higher than the current yield of 10% (3/21), indicating choice E.

Question 6

Which of the following would be considered a violation of the rights of one or more classes of a ﬁrm's stakeholders?

Accepted Answer

The answer of Which of the following would be considered...

Question 7

The dividend yield on a common stock is most similar to which yield on a bond?

Accepted Answer

The answer of The dividend yield on a common stock...

Question 8

Dividends on common stock:

Accepted Answer

Dividends on common stock must be declared by the board of directors before they become a liability of the firm.

Question 9

The underlying assumption of the dividend growth model is that a stock is worth:

Accepted Answer

The underlying assumption of the dividend growth model is that a stock is worth the present value of the future income which the stock generates. This model takes into account the expected future dividends and the rate at which those dividends are expected to grow. The value of stock can be calculated by dividing the expected dividend by the difference between the required rate of return and the dividend growth rate. Therefore, the best choice is B as it takes into account the future income generated by the stock.

Question 10

You just voted against a merger proposal made by another corporation. You must own:

Accepted Answer

Common stock holders have the right to vote on corporate decisions, including mergers and acquisitions. Preferred stock, debentures, cumulative dividend stock, and class B stock do not typically carry the same voting rights as common stock.

Question 11

The Zilo Corp. has 1,000 shareholders and is preparing to elect three new board members. You do not own enough shares to control the elections but are determined to oust the current leadership.
The most likely result of this situation is a:

Accepted Answer

As a minority shareholder, a proxy fight (where you seek support from other shareholders to elect new board members) is the most viable option to challenge the current leadership. Negotiated or arbitrated settlements are unlikely since you do not own enough shares for controlling power, and a legal battle would be costly and time-consuming. Total loss of power is also not an option, as you can still try to influence the company's decisions through shareholder activism. Therefore, the best option is a proxy fight to gain support from other shareholders to elect new board members.

Question 12

It is easier for an outsider to gain control over a corporation when:

Accepted Answer

Cumulative voting allows shareholders to concentrate their votes on a single candidate, which can make it easier for an outsider to gain control over a corporation by amassing enough votes to secure a position on the board.

Question 13

Which of the following typically applies to preferred stock but NOT to common stock?

Accepted Answer

Cumulative dividends typically only apply to preferred stock, not common stock.

Question 14

The term __________ is usually applied to stock that has no special preference either in paying dividends or in bankruptcy.

Accepted Answer

Common stock is the type of stock that has no special preference either in paying dividends or in bankruptcy. Preferred stock, on the other hand, has priority in receiving dividends and in case of bankruptcy, while a debenture is a type of bond. Cumulative voting and proxy are mechanisms for voting in shareholder meetings.

Question 15

Supernormal growth refers to a ﬁrm that increases its dividend by:

Accepted Answer

Supernormal growth refers to a rate of dividend growth that is higher than the average or sustainable rate over an extended period of time. Therefore, option B is the best choice, as it suggests that the rate of dividend growth is not sustainable over an extended period of time. Options A, C, D, and E do not take into account the sustainability factor and do not necessarily indicate supernormal growth.

Question 16

An asset characterized by cash ﬂows that increase at a constant rate forever is called a:

Accepted Answer

A growing perpetuity is an asset that generates cash flows that increase at a constant rate indefinitely into the future. This is in contrast to a regular perpetuity, which generates constant cash flows indefinitely into the future. A growing perpetuity is an important concept in finance, as it can help investors to value assets such as stocks and bonds that have a growing stream of cash flows. Therefore, the best choice is A.

Question 17

The dividend growth model:

Accepted Answer

The dividend growth model values a stock by considering both the dividend yield (the expected annual dividend divided by the current stock price) and the capital gains yield (the rate at which the value of the investment grows). This model is based on the premise that the value of a stock is the present value of all future dividends it is expected to provide, which inherently includes both current dividends (dividend yield) and the growth of those dividends (capital gains yield).

Question 18

Currently, you own 5% of the common stock of Alberta Industries. The right which grants you the ability to maintain your current level of ownership should the company opt to issue additional
Shares of stock is called the _____ right.

Accepted Answer

The right that grants a shareholder the ability to maintain their current level of ownership should the company opt to issue additional shares of stock is called the preemptive right. With a preemptive right, existing shareholders have the first option to purchase new shares before they are offered to the general public. This ensures that the existing shareholders maintain their proportional ownership in the company.

Question 19

You wish to be on the board of directors of a company. If you wish to buy as low a percentage of the total outstanding shares as is necessary to guarantee yourself a seat on the board, you should
Look for a ﬁrm that has ____________.

Accepted Answer

Cumulative voting common stock allows shareholders to pool their votes and concentrate them on a smaller number of candidates. This increases the chances of minority shareholders, like investors seeking a board seat, to get represented on the board with a lower percentage of outstanding shares.

Question 20

The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the
_____ model.

Accepted Answer

The Dividend Growth Model, also known as the Gordon Growth Model, calculates the value of a stock by dividing the next year's dividends by the discount rate minus the dividend growth rate. This model assumes that dividends will continue to grow at a constant rate indefinitely.

Quiz 8: Stock Valuation

Which of the following items does NOT usually appear in a National Post common stock quote?

The stock valuation model that determines the current stock price as the next dividend divided by the (discount rate less the dividend growth rate) is called the:

Which of the following does NOT correctly complete this sentence: Preferred stock is much like debt in that ______________.

Which one of the following statements is correct concerning the differences between preferred and common stock?

The preferred stock of the Pearson Institute pays a constant annual dividend of $3 and sells for $21. You believe the stock will sell for $12 in one year. You must, therefore, believe that the required Return on the stock will be % _______ in one year.

Which of the following would be considered a violation of the rights of one or more classes of a ﬁrm's stakeholders?

The dividend yield on a common stock is most similar to which yield on a bond?

Dividends on common stock:

The underlying assumption of the dividend growth model is that a stock is worth:

You just voted against a merger proposal made by another corporation. You must own:

The Zilo Corp. has 1,000 shareholders and is preparing to elect three new board members. You do not own enough shares to control the elections but are determined to oust the current leadership. The most likely result of this situation is a:

It is easier for an outsider to gain control over a corporation when:

Which of the following typically applies to preferred stock but NOT to common stock?

The term __________ is usually applied to stock that has no special preference either in paying dividends or in bankruptcy.

Supernormal growth refers to a ﬁrm that increases its dividend by:

An asset characterized by cash ﬂows that increase at a constant rate forever is called a:

The dividend growth model:

Currently, you own 5% of the common stock of Alberta Industries. The right which grants you the ability to maintain your current level of ownership should the company opt to issue additional Shares of stock is called the _____ right.

You wish to be on the board of directors of a company. If you wish to buy as low a percentage of the total outstanding shares as is necessary to guarantee yourself a seat on the board, you should Look for a ﬁrm that has ____________.

The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model.

Quiz 8: Stock Valuation

Which of the following items does NOT usually appear in a National Post common stock quote?

The stock valuation model that determines the current stock price as the next dividend divided by the (discount rate less the dividend growth rate) is called the:

Which of the following does NOT correctly complete this sentence: Preferred stock is much like debt in that ______________.

Which one of the following statements is correct concerning the differences between preferred and common stock?

The preferred stock of the Pearson Institute pays a constant annual dividend of $3 and sells for $21. You believe the stock will sell for $12 in one year. You must, therefore, believe that the required Return on the stock will be ____ % ___________ in one year.

Which of the following would be considered a violation of the rights of one or more classes of a ﬁrm's stakeholders?

The dividend yield on a common stock is most similar to which yield on a bond?

Dividends on common stock:

The underlying assumption of the dividend growth model is that a stock is worth:

You just voted against a merger proposal made by another corporation. You must own:

The Zilo Corp. has 1,000 shareholders and is preparing to elect three new board members. You do not own enough shares to control the elections but are determined to oust the current leadership. The most likely result of this situation is a:

It is easier for an outsider to gain control over a corporation when:

Which of the following typically applies to preferred stock but NOT to common stock?

The term __________ is usually applied to stock that has no special preference either in paying dividends or in bankruptcy.

Supernormal growth refers to a ﬁrm that increases its dividend by:

An asset characterized by cash ﬂows that increase at a constant rate forever is called a:

The dividend growth model:

Currently, you own 5% of the common stock of Alberta Industries. The right which grants you the ability to maintain your current level of ownership should the company opt to issue additional Shares of stock is called the _____ right.

You wish to be on the board of directors of a company. If you wish to buy as low a percentage of the total outstanding shares as is necessary to guarantee yourself a seat on the board, you should Look for a ﬁrm that has ____________.

The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model.

The preferred stock of the Pearson Institute pays a constant annual dividend of $3 and sells for $21. You believe the stock will sell for $12 in one year. You must, therefore, believe that the required Return on the stock will be % _______ in one year.