Question 1

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

Accepted Answer

Retained earnings are the portion of a corporation's profits that are kept for reinvestment instead of being paid out as dividends to shareholders. This allows the company to finance future growth and expansion by reinvesting in the business. Preferred stock is a type of stock that pays a fixed dividend and has priority over common stock in terms of receiving dividends or assets in the event of liquidation. Dividends are the portion of a corporation's profits that are distributed to shareholders. Capital gains are the profits made from selling an asset for more than its original cost.

Question 2

Which of the following is part of the secondary market?

Accepted Answer

All of these options are part of the secondary market. The NYSE and NASDAQ are both major stock exchanges where investors can buy and sell shares of publicly traded companies. The over-the-counter market refers to trades that occur directly between buyers and sellers outside of organized exchanges.

Question 3

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 answer of In 2011,the dividend yield on Abercrombie &...

Question 4

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, which represents the percentage return on the stock's current market price from the dividend payment.

Question 5

The interest payment on a bond is called

Accepted Answer

The coupon payment refers specifically to the interest payment on a bond. The principal is the amount borrowed, the interest rate is the percentage used to determine the coupon payment, and the face value is the amount the bond is worth at maturity.

Question 6

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 (P/E ratio) is calculated by dividing the price per share by the earnings per share (EPS). In this case, we know the P/E ratio and the price per share, so we can solve for the EPS as follows:

P/E ratio = Price per share / Earnings per share

4.73 = $23 / Earnings per share

Earnings per share = $23 / 4.73 = $4.86

Therefore, the only true statement is that GM's earnings per share was $4.86 (choice B). The other options are not related to the given information.

Question 7

What happens in the secondary market?

Accepted Answer

In the secondary market, already issued claims such as stocks and bonds are bought and sold from one investor to another. This market allows investors to buy and sell securities without the involvement of the issuing company.

Question 8

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. The bondholder is not considered an owner of the company and has no ownership rights or control over the company's decisions. The interest paid on the bond represents the return on the investment for the bondholder. The face value of the bond is the amount that the investor will receive at maturity, not necessarily equal to what the investor paid for the bond.

Question 9

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 decision to sell stock through NASDAQ market indicates that they raised funds through a financial market.

Question 10

What is a primary market?

Accepted Answer

A primary market is a market where a company or government can issue new securities for the purpose of raising capital. In this market, the securities are sold for the first time to investors, and the proceeds from the sale go directly to the issuing company or government. Option A is incorrect because it refers to a market for raw materials, not securities. Option B is incorrect because as a private investor, you would typically sell bonds on the secondary market. Option D is incorrect because as a private investor, you would typically sell stocks on the secondary market.

Question 11

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 12

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 13

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 the range of the stock's market price, which reflects how volatile the stock's market price has been. It does not indicate the current market price, price-earnings ratio, or dividend yield.

Question 14

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

When coupon payments on newly-issued bonds fall to $50 per year, the coupon rate on your bond becomes more attractive relative to the market, leading to an increase in demand for your bond and thus an increase in its price.

Question 15

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

Accepted Answer

Bondholders have first claim on the firm's assets in case of bankruptcy as they are creditors and have lent money to the corporation with an expectation of receiving regular interest payments and eventual repayment of the principal. Stockholders have residual claim on the assets after bondholders and other creditors have been paid off. The state where the corporation is chartered and employees generally do not have any priority claim on the firm's assets in case of bankruptcy.

Question 16

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 17

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

Accepted Answer

The owners of a corporation share in the profit through dividend payments on shares of that firm's stock. Coupon payments on bonds are fixed and do not fluctuate based on the corporation's profits. Selling bonds or stocks may result in a capital gain, but it does not directly involve sharing in the corporation's profits. Raising the interest rate on bonds does not necessarily relate to sharing in the corporation's profits.

Question 18

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

Accepted Answer

The primary market refers to where newly-issued securities, such as stocks or bonds, are sold for the first time by the issuing company to investors. In this case, newly-issued shares of Google stock are being sold for the first time and therefore the transaction takes place in the primary market.

Question 19

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

Accepted Answer

The formula given in the question is for calculating earnings per share (EPS), which is the amount of a company's profit allocated to each outstanding share of common stock. Total dividend payments plus retained earnings represent the company's total earnings available to shareholders, and dividing that by outstanding stock shares gives us the EPS. The price-earnings ratio (A) is calculated by dividing the current market price of a share by its EPS. The dividend yield (C) is the annual dividend payment per share divided by the current market price of a share. The year-to-date percentage change (D) is the percentage change in stock price since the beginning of the year.

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 8: Firms, the Stock Market, and Corporate Governance