Exam 9: Stock Valuation

A) It implies that the underlying value of a share of stock is determined by the market's expectations of the future dividends that the firm will generate.
B) It implies that the value of a firm's common stock can be determined only if the expected future dividends are infinite.
C) It implies that the value of a growth stock can be determined by forecasting the future price of the stock.
D) The model cannot be used to calculate the value of a common stock unless the dividends exceed the firm's expected growth rate.

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A) Preferred stock has a higher-priority claim on the firm's assets than the common stock.
B) Failure to pay dividends on preferred stocks will result in a default.
C) Preferred stock has a lower-priority claim on the firm's assets than the firm's creditors in the event of default.
D) Preferred stock typically pays a fixed dividend.

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A) The Dow Jones Industrial Average
B) The OTQ Composite Index
C) The New York Stock Exchange Index
D) The Standard and Poor's 500 Index

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A) Dividends remain constant over time, dividends grow at a constant rate, and dividends are equal to zero.
B) Dividends have a zero-growth rate, dividends grow at a varying rate, and dividends are equal to zero.
C) Dividends remain constant over time, dividends grow at a constant rate, and dividends have a mixed growth pattern.
D) None of the above.

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A) $13.50
B) $9.72
C) $12.50
D) $11.63

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A) In terms of total stock value of the firms listed, the NASDAQ is the largest in the world and the NYSE is the second largest.
B) NASDAQ is the second-largest stock market in the United States.
C) Firms listed on the NYSE tend to belarger in size and their shares trade more frequently than those traded on NASDAQ.
D) In the United States, most secondary market transactions are done on one of the many stock exchanges.

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A) mutual funds
B) pension funds
C) Foreign investors
D) households

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D

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A) the size and timing of the dividend cash flows are less certain than the coupon payments for bonds.
B) common stocks have no final maturity date.
C) unlike the rate of return, or yield, on bonds, the rate of return on common stock is not directly observable.
D) All of the above are true.

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D

A) $74
B) $32
C) $80
D) $60

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A) Common-stock holders have the right to vote on the election of the board of directors of their company.
B) Common stock is considered to have no fixed maturity.
C) Owners of common stock are guaranteed dividend payments by the firm.
D) Common-stock holders have limited liability toward the obligations of the corporation.

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C

A) In terms of total stock value of the firms listed, the NASDAQ is the largest in the world and the NYSE is the second largest.
B) NASDAQ is the second-largest stock market in the United States.
C) Firms listed on the NYSE tend to belarger in size and their shares trade more frequently than those traded on NASDAQ.
D) In the United States, most secondary market transactions are done on one of the many stock exchanges.

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A) complete price information.
B) extensive broker and dealer participation.
C) private placement transactions and sale of common stock of small private companies.
D) a high level of efficiency.

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