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Exam 7: Equity Markets and Stock Valuation

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Question 1

Multiple Choice

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The stock price of Samuelson, Inc., is $71. Investors require a 15 percent rate of return on similar stocks. If the company plans to pay a dividend of $4.20 next year, what growth rate is expected for the company's stock price?

A) 6.01 percent
B) 7.56 percent
C) 7.78 percent
D) 8.24 percent
E) 9.08 percent

F) A) and E)
G) A) and B)

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Question 2

Multiple Choice

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If a trade is made "in the crowd", the trade has occurred:

A) between a broker and a specialist.
B) between two brokers.
C) electronically on NASDAQ.
D) on SuperDOT.
E) on an ECN.

F) None of the above
G) C) and D)

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Question 3

Multiple Choice

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An individual who executes buy and sell orders on the floor of an exchange for a fee is called a:

Explain how staggering offsets some of the benefits associated with cumulative voting.

Given the following partial stock quote, what is the expected annual dividend?

The Cart Wheel plans to pay an annual dividend of $1.20 per share next year, $1.00 per share a year for the following two years, and then cease paying dividends altogether. How much is one share of this stock worth to you today if you require a 17 percent rate of return?

Miller's Hardware has 185,000 shares of stock outstanding with a current market value of $27 a share. You own 38,000 of those shares. Next month, the election will be held to select four new members to the board of directors. The firm uses a cumulative voting system. How much additional money do you need to spend to guarantee that you will be elected to the board assuming that everyone else votes for one of the other candidates?

There are two open seats on the board of directors. If two separate votes occur to elect the new directors, the firm is using a type of voting that is best described as _____ voting.

The dividend yield is defined as:

How are preferred stock dividends treated for tax purposes by the issuer, an individual shareholder, and a corporate shareholder?

Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15 years. Yesterday, the firm announced the dividend will increase next year by 10 percent and will stay at the level through year three, after which time the dividends will increase by 2 percent annually. The required return on this stock is 12 percent. What is the current value per share?

The more actively traded large companies that are listed on NASDAQ are traded in which one of the NASDAQ markets?

Which one of the following parties on the NYSE floor post bid and asked prices?

How is the stated value of a preferred stock utilized?

A stock has a market price of $46.10 and pays a $2.40 annual dividend. What is the dividend yield?

For the past six years, the price of Slate Rock stock has been increasing at a rate of 8.6 percent a year. Currently, the stock is priced at $47 a share and has a required return of 14 percent. What is the dividend yield?

Which one of the following statements is correct?

Which one of the following types of securities has no priority in a bankruptcy proceeding?

Last year, when the stock of Alpha Minerals was selling for $55 a share the dividend yield was 3.2 percent. Today, the stock is selling for $41 a share. What is the total return on this stock if the company maintains a constant dividend growth rate of 2.5 percent?

Business Services, Inc. is expected to pay its first annual dividend of $0.80 per share three years from now. Starting in year six, the company is expected to start increasing the dividend by 2 percent per year. What is the value of this stock today at a required return of 12 percent?