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1、Chapter 11Chapter 11The Stock MarketThe Stock MarketMultiple Choice Questions1.(I)A share of common stock in a firm represents an ownership interest in that firm.(II)A share ofpreferred stock is as much like a bond as it is like common stock.(a)(I)is true,(II)false.(b)(I)is false,(II)true.(c)Both ar
2、e true.(d)Both are false.Answer:CPreferred stockholders hold a claim on assets that has priority over the claims of(a)both common stockholders and bondholders.(b)neither common stockholders nor bondholders.(c)common stockholders,but after that of bondholders.(d)bondholders,but after that of common s
3、tockholders.Answer:C3.(I)Preferred stockholders hold a claim on assets that has priority over the claims of commonstockholders,but after that of bondholders.(II)Firms issue preferred stock in far greater amountsthan common stock.(a)(I)is true,(II)false.(b)(I)is false,(II)true.(c)Both are true.(d)Bot
4、h are false.Answer:A(I)Preferred stockholders hold a claim on assets that has priority over the claims of commonstockholders.(II)Bondholders hold a claim on assets that has priority over the claims of preferredstockholders.(a)(I)is true,(II)false.2.4.(b)(I)is false,(II)true.(c)Both are true.(d)Both
5、are false.Answer:C5.(I)Firms issue common stock in far greater amounts than preferred stock.(II)The total volume ofstock issued is much less than the volume of bonds issued.(a)(I)is true,(II)false.(b)(I)is false,(II)true.(c)Both are true.(d)Both are false.Answer:CThe riskiest capital market security
6、 is(a)preferred stock.(b)common stock.(c)corporate bonds.(d)Treasury bonds.Answer:BOrganized exchanges account for about _ percent of the total dollar volume of domesticstock shares traded.(a)30(b)45(c)60(d)70Answer:DOrganized exchanges account for about _ percent of the total dollar volume of domes
7、ticstocks traded.(a)60(b)70(c)80(d)90Answer:B(I)The largest of the organized stock exchanges in the United States is the New York StockExchange.(II)To be listed on the NYSE,a firm must have a minimum of$100 million dollars inmarket value or$10 million in revenues.(a)(I)is true,(II)false.(b)(I)is fal
8、se,(II)true.(c)Both are true.(d)Both are false.Answer:A6.7.8.9.10.To list on the NYSE,a firm must(a)have earnings of at least$100 million for each of the last three years.(b)have at least$500 million of market value and$100 million of revenue.(c)have a total of$100 million in market value of publicl
9、y traded shares.(d)meet all of the above requirements.(e)meet(a)and(b)of the above requirements.Answer:E11.Securities not listed on one of the exchanges trade in the over-the-counter market.In this exchange,dealers“make a market”by(a)buying stocks for inventory when investors want to sell.(b)selling
10、 stocks from inventory when investors want to buy.(c)doing both of the above.(d)doing neither of the above.Answer:C12.The most active stock exchange in the world is the(a)Nikkei Stock Exchange.(b)London Stock Exchange.(c)Shanghai Stock Exchange.(d)New York Stock Exchange.Answer:A13.Which of the foll
11、owing statements about trading operations in an organized exchange are correct?(a)Floor traders all deal in a wide variety of stocks.(b)In most trades,specialists match buy and sell orders.(c)In most trades,specialists buy for or sell from their own inventories.(d)The SuperDOT system is used to expe
12、dite large trades of over 100,000 shares.Answer:B14.Which of the following is not an advantage of Electronic Communications Networks(ECNs)?(a)All unfilled orders are available for review by ECN traders.(b)Transactions costs are lower for ECN trades.(c)Trades are made and confirmed faster.(d)ECNs wor
13、k well for thinly traded stocks.Answer:D15.Which of the following statements is false regarding Electronic Communications Networks(ECNs)?(a)Archipelago and Instinet are two examples of ECNs.(b)Competition from ECNs has forced NASDAQ to cut its fees.(c)Traders benefit from lower trading costs and fas
14、ter service.(d)ECNs allow institutional investors,but not individuals,to trade after hours.Answer:D16.A basic principle of finance is that the value of any investment is(a)the present value of all future net cash flows generated by the investment.(b)the undiscounted sum of all future net cash flows
15、generated by the investment.(c)unrelated to the future net cash flows generated by the investment.(d)unrelated to the degree of risk associated with the future net cash flows generated by theinvestment.Answer:A17.A stock currently sells for$25 per share and pays$0.24 per year in dividends.What is an
16、 investorsvaluation of this stock if she expects it to be selling for$30 in one year and requires 15 percentreturn on equity investments?(a)$30.24(b)$26.30(c)$26.09(d)$27.74Answer:B18.A stock currently sells for$30 per share and pays$1.00 per year in dividends.What is an investorsvaluation of this s
17、tock if he expects it to be selling for$37 in one year and requires 12 percent returnon equity investments?(a)$38(b)$33.50(c)$34.50(d)$33.93Answer:D19.In the one-period valuation model,a stocks value will be higher(a)the higher is its expected future price.(b)the lower is its dividend.(c)the higher
18、is the required return on investments in equity.(d)all of the above.Answer:A20.In the one-period valuation model,a stocks value falls if the _ rises.(a)dividend(b)expected future price(c)required return on equity(d)current priceAnswer:C21.In the generalized dividend valuation model a stocks value de
19、pend only on(a)its future dividend payments and its future price.(b)its future dividend payments and the required return on equity.(c)its future price and the required return on investments on equity.(d)its future dividend payments.Answer:B22.Which of the following is not an element of the Gordon gr
20、owth model of stock valuation?(a)the stocks most recent dividend paid.(b)the expected constant growth rate of dividends.(c)the required return on investments in equity.(d)the stocks expected future price.Answer:D23.According to the Gordon growth model,what is an investors valuation of a stock whose
21、currentdividend is$1.00 per year if dividends are expected to grow at a constant rate of 10 percent over along period of time and the investors required return is 11 percent?(a)$110(b)$100(c)$11(d)$10(e)$5.24Answer:A24.According to the Gordon growth model,what is an investors valuation of a stock wh
22、ose currentdividend is$1.00 per year if dividends are expected to grow at a constant rate of 10 percent over along period of time and the investors required return is 15 percent?(a)$20(b)$11(c)$22(d)$7.33(e)$4.40Answer:C25.Holding other things constant,a stocks value will be highest if its dividend
23、growth rate is(a)15 percent(b)10 percent(c)5 percent(d)2 percentAnswer:A26.Holding other things constant,a stocks value will be highestif its most recent dividend is(a)$2.00(b)$5.00(c)$0.50(d)$1.00Answer:B27.Holding other things constant,a stocks value will be highest if the investors required retur
24、n oninvestments in equity is(a)20 percent(b)15 percent(c)10 percent(d)5 percentAnswer:D28.Suppose the average industry PE ratio for auto parts retailers is 20.What is the current price of AutoZone stock if the retailers earnings per share are projected to be$1.85?(a)$21.85(b)$37(c)$10.81(d)$9.25Answ
25、er:B29.Which of the following is true regarding the Gordon growth model?(a)Dividends are assumed to grow at a constant rate forever.(b)The dividend growth rate is assumed to be greater than the required return on equity.(c)Both(a)and(b).(d)Neither(a)nor(b).Answer:A30.The PE ratio approach to valuing
26、 stock is especially useful for valuing(a)privately held firms.(b)firms that dont pay dividends.(c)both(a)and(b).(d)neither(a)nor(b).Answer:C31.The PE ratio approach to valuing stock is especially useful for valuing(a)publicly held corporations.(b)firms that regularly pay dividends.(c)both(a)and(b).
27、(d)neither(a)nor(b).Answer:D32.A weakness of the PE approach to valuing stock is that it is(a)difficult to estimate the constant growth rate of a firms dividends.(b)difficult to estimate the required return on equity.(c)difficult to predict how much a firm will pay in dividends.(d)based on industry
28、averages rather than firm-specific factors.Answer:D33.A firm is expected to pay a dividend of$1.00 next year and the dividend is expected to grow at aconstant rate of 4 percent over time.Some investors have required returns on investments in equityof 12 percent,some 10 percent,and some 8 percent.The
29、 marketprice of this firms stock will beslightly above(a)$25(b)$18(c)$16.67(d)$12.50Answer:C34.(I)The market price of a security at a given time is the highest value any investor puts on thesecurity.(II)Superior information about a security increases its value by reducing its risk.(a)(I)is true,(II)
30、is false.(b)(I)is false,(II)is true.(c)Both are true.(d)Both are false.Answer:B35.The main cause of fluctuations in stock prices is changes in(a)tax laws.(b)errors in technical stock analysis.(c)daily trading volume in stock markets.(d)information available to investors.(e)total household wealth in
31、the economy.Answer:D36.Stock values computed by valuation models may differ from actual market prices because it isdifficult to(a)estimate future dividend growth rates.(b)estimate the risk of a stock.(c)forecast a stocks future dividends.(d)all of the above are true.Answer:D37.The 2001 terrorist att
32、acks and the Enron financial scandal caused anticipated dividend growth to_,investors required return on equity to _,and stock prices to _.(a)decreases;increase;decrease(b)decrease;increase;increase(c)increase;decrease;decrease(d)increase;decrease;increaseAnswer:A38.Which of the following is not an
33、objective of the Securities and Exchange Commission?(a)maintain integrity of the securities markets(b)advise investors about which particular stocks are good buys(c)require firms to provide specific information to investors(d)regulate major participants in securities marketsAnswer:BTrue/False1.More
34、stock trading in the U.S.occurs in over-the-counter markets rather than on organizedexchanges.Answer:FALSEIn over-the-counter markets,dealers increases the liquidity of thinly traded securities.Answer:TRUEElectronic Communications Networks apply technology to make organized exchanges moreefficient a
35、nd speedy.Answer:FALSEAll stocks pay dividends,as that is the only way an investor can profit from holding stock.Answer:FALSECommon stock is the riskiest corporate security,followed by preferred stock and then bonds.Answer:TRUEThe Enron financial scandal increased uncertainty about the quality of ac
36、counting information andas a result increased required return on investment in stocks.Answer:TRUEThe Dow Jones Industrial Average is the broadest and best indicator of the stock markets2.3.4.5.6.7.day-to-day performance.Answer:FALSE8.The Securities and Exchange Commission requires firms to submit va
37、rious documents to increasethe flow of information to investors but does not verify the accuracy of that information.Answer:TRUEAbout half of new equity issues are preferred stock.Answer:FALSE9.10.A stocks market value will be higher the higher is its expected dividend stream.Answer:TRUE11.The Gordo
38、n growth model assumes that a stocks dividend grows at a constant rate forever.Answer:TRUE12.A stocks market value will be higher the higher is the investors required rate of return.Answer:FALSEEssay1.2.3.4.5.6.7.8.9.How do corporate stocks differ from bonds?How do common stocks differ from preferre
39、d stock?How do over-the-counter markets differ from organized exchanges?What is the role of specialists on a stock exchange?What are the advantages and disadvantages of Electronic Communications Networks(ECNs)fortrading stocks?What is the role of the required return on equity investments in stock valuation models?Using the Gordon growth model,explain why the 2001 terorist attacks and the Enron financialscandal caused stock prices to decline.What are American Depository Receipts(ADRs)?What are the objectives of the Securities and Exchange Commission?