Question 1

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 2

What happens in the secondary market?

Accepted Answer

In the secondary market, already issued claims (such as stocks, bonds, and other securities) are sold from one investor to another. This allows investors to buy and sell securities without affecting the issuing company's finances.

Question 3

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 raising funds through the sale of stock to the public on the NASDAQ market is an example of using a financial market to acquire funds.

Question 4

The interest payment on a bond is called

Accepted Answer

The interest payment on a bond is called the coupon payment, which is the fixed amount of interest paid to the bondholder annually or semi-annually. The principal is the initial amount paid for the bond, the interest rate is the percentage of the principal paid as interest, and the face value is the amount the bond will be worth at maturity.

Question 5

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 is the percentage return on investment from a stock's dividend payments.

Question 6

What is a primary market?

Accepted Answer

A primary market is where new securities are sold by the issuer (borrowing firm) to initial buyers. Option A is incorrect because it refers to a commodity market, not a securities market. Option B is incorrect because it refers to the private sale of bonds, not the primary market. Option D is incorrect because it refers to the private sale of stocks, not the primary market.

Question 7

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 price-earnings ratio, which is a commonly used measure of a company's current valuation relative to its earnings.

Question 8

Which of the following is part of the secondary market?

Accepted Answer

All three options (NYSE, over-the-counter market, and NASDAQ) are part of the secondary market. The secondary market involves the trading of already issued securities between investors, rather than the initial sale of securities by the company (which occurs in the primary market).

Question 9

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

Accepted Answer

The calculation described is for earnings per share (EPS). EPS is calculated as (total dividends + retained earnings) / outstanding stock shares. The other options (price-earnings ratio, dividend yield, year-to-date percentage change) do not involve this specific calculation.

Question 10

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 11

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

Price-earnings ratio (P/E ratio) is calculated by dividing the stock price by the earnings per share (EPS). Therefore, EPS can be calculated by dividing the stock price by the P/E ratio:
EPS = Stock price / P/E ratio = $23 / 4.73 ≈ $4.86. Choice B is the only option that matches this calculation.

Question 12

When an investor buys a corporate bond,

Accepted Answer

When an investor buys a corporate bond, they are essentially loaning money to the corporation in return for regular interest payments and eventual repayment of the principal. The investor does not become a part owner of the corporation and the interest made on the bond does not represent limited liability in the company. The face value of the bond may be different from what the investor paid for it, depending on market conditions.

Question 13

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

Accepted Answer

Retained earnings refer to the portion of a corporation's profits that are kept by the company for future expansion and investment. Preferred stock refers to a type of stock that typically pays a fixed dividend and has priority over common stock in the event of liquidation. Dividends are payments made to shareholders as a distribution of the company's profits. Capital gains refer to the increase in the value of an investment over time.

Question 14

What do the highest stock price and the lowest stock price over the previous year indicate?

Accepted Answer

The highest and lowest stock price over the previous year indicate the volatility of the stock's market price, showing how much the price has fluctuated. It does not have any relation to the current market price, price-earnings ratio, or dividend yield.

Question 15

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

If coupon payments on newly-issued bonds fall to $50 per year, then your bond's coupon payments of $60 per year become relatively more valuable, increasing demand for your bond and driving up its price.

Question 16

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

Accepted Answer

When a corporation earns a profit, the owners of the firm, who are the shareholders, share in the profit through dividend payments on shares of that firm's stock. The dividend payments are a portion of the profit that the corporation chooses to distribute to its shareholders as a return on their investment in the stock. The other options (A, C, D) are not correct because bondholders do not share in the profits of a corporation in the same way that shareholders do, and raising the interest rate on bonds does not affect the profits of the corporation.

Question 17

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

Accepted Answer

The primary market is where new securities, such as newly-issued shares of stock, are created and sold to the public for the first time. This market involves the initial public offering (IPO) process and allows companies to raise capital by issuing new shares of stock.

Question 18

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 19

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

Accepted Answer

Bondholders have priority over stockholders and employees in terms of claiming a corporation's assets during bankruptcy proceedings. The state where the corporation is chartered does not have any claims on the firm's assets.

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 6: Firms, the Stock Market, and Corporate Governance