Question 1

The largest holders of equity securities are:

Accepted Answer

A)  households.
B)  managed funds.
C)  foreign investors.
D)  superannuation funds.

Question 2

The term shareholder equity implies:

Accepted Answer

A)  a right to dividends.
B)  an ownership claim.
C)  a prior claim on income and assets.
D)  a contractual relationship with a corporation.

Question 3

The common stock of Grunskies Ltd currently sells for $48 per share.The firm has a constant dividend growth rate of 6 percent.If the required rate of return is 15 percent,what is the expected dividend yield on the stock?

Accepted Answer

A)  6.0%.
B)  8.5%.
C)  9.0%.
D)  15.0%.

Question 4

Which one of the following statements is not true about secondary markets?

Accepted Answer

A)  In Australia,most secondary equity market transactions take place on the ASX.
B)  In terms of the number of companies listed and shares traded on a daily basis,the NYSE is larger than the ASX.
C)  Companies listed on the NYSE tend to be,on average,larger in size and their shares trade more frequently than companies whose securities trade on ASX.
D)  In terms of total volume of activity and total capitalisation of the companies listed,the ASX is the largest in the world and the NYSE is the second largest.

Question 5

Which of the following statements is not correct? An ordinary shareholder in a troubled corporation:

Accepted Answer

A)  may lose his/her house.
B)  does not receive dividends.
C)  records a decrease in the value of his/her assets.
D)  receives the proceeds from the sale of the assets after the creditors and the preference shareholders are paid if the company goes bankrupt.

Question 6

A share that pays $20 in dividends this year with an annual growth rate of 3% forever for a required return of 5% has a valuation of:

Accepted Answer

A)  $257.
B)  $412.
C)  $420.
D)  $1,030.

Question 7

The preference share of Gainsite Ltd is selling currently at $110.35.If your required rate of return is 9.75 percent,what is the dividend paid by this share?

Accepted Answer

A)  $9.75.
B)  $11.32.
C)  $10.76.
D)  $8.53.

Question 8

Which one of the following statements is not true about ordinary shares?

Accepted Answer

A)  Ordinary shareholders have limited liability.
B)  Ordinary shares are considered to have no fixed maturity.
C)  Ordinary shareholders have the right to vote on the selection of the board of directors for the company.
D)  Owners of ordinary shares are guaranteed dividend payments by the company.

Question 9

In case of bankruptcy and liquidation of assets,what is the order of the claimants?

Accepted Answer

A)  Debt holders,equity holders and preferred shareholders equally.
B)  Debt holders,preferred shareholders,equity holders.
C)  Debt holders,equity holders,preferred shareholders.
D)  Equity holders,debt holders,preferred shareholders.

Question 10

Traditional preference shares:

Accepted Answer

A)  have a maturity date.
B)  pay dividends of various amounts.
C)  pay dividends at irregular intervals.
D)  are often referred to as fixed-income investments.

Question 11

If the required rate of return is higher than the dividend rate of a preferred share,the par value is _________________ the current market value of the preferred share.

Accepted Answer

A)  independent of
B)  less than
C)  equal to
D)  higher than

Question 12

Which of the following is not a correct statement about equity securities?

Accepted Answer

A)  No fixed maturity date.
B)  Ownership interests in an underlying entity.
C)  Dividends are a tax-deductible expense for the issuer.
D)  Shareholders pay lower taxes on dividends than they would on interest payments.

Question 13

Preference shares are sometimes regarded as a debt security because:

Accepted Answer

A)  legally preference shares are a debt security.
B)  preference shareholders receive a residual value and not a stated value.
C)  preference dividends are paid out of before-tax income just like interest payments on bonds.
D)  preference share dividend payments,like bond interest payments are considered fixed obligations for the company.

Question 14

BlueSteel Manufacturing Company has been generating stable revenues but sees no growth in it for the foreseeable future.The company's last dividend was $3.25,and it is unlikely to change the amount paid out.If the required rate of return is 12 percent,what is the share worth today?

Accepted Answer

A)  $39.00.
B)  $3.69.
C)  $27.08.
D)  $21.23.

Question 15

Kwik Lift Ltd will pay dividends of $4.75,$5.25,$5.75,and $7 for the next four years.Thereafter,the company expects its growth rate to be at a constant rate of 7 percent.If the required rate of return is 15 percent,what is the current market price of the share?

Accepted Answer

A)  $69.42.
B)  $93.63.
C)  $57.54.
D)  $80.29.

Question 16

Which one of the following statements is true about dealer markets?

Accepted Answer

A)  Dealers do not place capital at risk.
B)  Dealers guarantee the sale or purchase of an order.
C)  The NYSE is the best- known example of a dealer market.
D)  A dealer market involves time-consuming search for a fair deal.

Question 17

Rum City Foods Ltd is a wholesale company of frozen foods.The company pays a dividend of $7 per share per year,and the board of directors have no plan to change the dividend payouts.Investors within the company expect a return of 25% per share that they own.What is the price of one share?

Accepted Answer

A)  $0.25.
B)  $7.00
C)  $7.25.
D)  $28.00.

Question 18

Coral Coast Printers Ltd's preferred stock is selling for $30 per share.What is the expected dividend of year four if the required rate of return is 7.5 percent?

Accepted Answer

A)  $3.25.
B)  $2.00.
C)  $2.25.
D)  $3.00.

Question 19

Cloud Storage Ltd is a fast-growing technology company.The company projects a rapid growth of 40 percent for the next two years and then a growth rate of 20 percent for the following two years.After that,the company expects a constant-growth rate of 8 percent.The company expects to pay its first dividend of $1.25 a year from now.If your required rate of return on such shares is 20 percent,what is the current price of the share?

Accepted Answer

A)  $15.63.
B)  $4.70.
C)  $30.30.
D)  $22.68.

Question 20

Which one of the following statements is true about secondary markets?

Accepted Answer

A)  The presence of active brokers increases market inefficiency.
B)  The ordinary shares of large companies often rely on word-of-mouth to find interested buyers.
C)  Brokers bring buyers and sellers together to earn a fee.
D)  A specialist is a specific location on the floor of a securities exchange at which auctions for a particular security take place.

Exam 10: Equity Markets and Share Valuation

Correct Answer
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Which one of the following statements is true about dealer markets?

Correct Answer
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In case of bankruptcy and liquidation of assets,what is the order of the claimants?

Correct Answer
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Which one of the following statements is not true about secondary markets?

Correct Answer
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A share that pays $20 in dividends this year with an annual growth rate of 3% forever for a required return of 5% has a valuation of:

Correct Answer
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Rum City Foods Ltd is a wholesale company of frozen foods.The company pays a dividend of $7 per share per year,and the board of directors have no plan to change the dividend payouts.Investors within the company expect a return of 25% per share that they own.What is the price of one share?

Correct Answer
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Traditional preference shares:

Correct Answer
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The common stock of Grunskies Ltd currently sells for $48 per share.The firm has a constant dividend growth rate of 6 percent.If the required rate of return is 15 percent,what is the expected dividend yield on the stock?

Correct Answer
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Coral Coast Printers Ltd's preferred stock is selling for $30 per share.What is the expected dividend of year four if the required rate of return is 7.5 percent?

Correct Answer
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The largest holders of equity securities are:

Correct Answer
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Which of the following is not a correct statement about equity securities?

Correct Answer
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Which of the following statements is not correct? An ordinary shareholder in a troubled corporation:

Correct Answer
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If the required rate of return is higher than the dividend rate of a preferred share,the par value is _________________ the current market value of the preferred share.

Correct Answer
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Which one of the following statements is true about secondary markets?

Correct Answer
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BlueSteel Manufacturing Company has been generating stable revenues but sees no growth in it for the foreseeable future.The company's last dividend was $3.25,and it is unlikely to change the amount paid out.If the required rate of return is 12 percent,what is the share worth today?

Correct Answer
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The preference share of Gainsite Ltd is selling currently at $110.35.If your required rate of return is 9.75 percent,what is the dividend paid by this share?

Correct Answer
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Kwik Lift Ltd will pay dividends of $4.75,$5.25,$5.75,and $7 for the next four years.Thereafter,the company expects its growth rate to be at a constant rate of 7 percent.If the required rate of return is 15 percent,what is the current market price of the share?

Correct Answer
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Which one of the following statements is not true about ordinary shares?

Correct Answer
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The term shareholder equity implies:

Correct Answer
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Preference shares are sometimes regarded as a debt security because:

Correct Answer
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Exam 10: Equity Markets and Share Valuation

Correct AnswerverifiedShow Answer

Which one of the following statements is true about dealer markets?

Correct AnswerverifiedShow Answer

In case of bankruptcy and liquidation of assets,what is the order of the claimants?

Correct AnswerverifiedShow Answer

Which one of the following statements is not true about secondary markets?

Correct AnswerverifiedShow Answer

A share that pays $20 in dividends this year with an annual growth rate of 3% forever for a required return of 5% has a valuation of:

Correct AnswerverifiedShow Answer

Rum City Foods Ltd is a wholesale company of frozen foods.The company pays a dividend of $7 per share per year,and the board of directors have no plan to change the dividend payouts.Investors within the company expect a return of 25% per share that they own.What is the price of one share?

Correct AnswerverifiedShow Answer

Traditional preference shares:

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The common stock of Grunskies Ltd currently sells for $48 per share.The firm has a constant dividend growth rate of 6 percent.If the required rate of return is 15 percent,what is the expected dividend yield on the stock?

Correct AnswerverifiedShow Answer

Coral Coast Printers Ltd's preferred stock is selling for $30 per share.What is the expected dividend of year four if the required rate of return is 7.5 percent?

Correct AnswerverifiedShow Answer

The largest holders of equity securities are:

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Which of the following is not a correct statement about equity securities?

Correct AnswerverifiedShow Answer

Which of the following statements is not correct? An ordinary shareholder in a troubled corporation:

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If the required rate of return is higher than the dividend rate of a preferred share,the par value is _________________ the current market value of the preferred share.

Correct AnswerverifiedShow Answer

Which one of the following statements is true about secondary markets?

Correct AnswerverifiedShow Answer

BlueSteel Manufacturing Company has been generating stable revenues but sees no growth in it for the foreseeable future.The company's last dividend was $3.25,and it is unlikely to change the amount paid out.If the required rate of return is 12 percent,what is the share worth today?

Correct AnswerverifiedShow Answer

The preference share of Gainsite Ltd is selling currently at $110.35.If your required rate of return is 9.75 percent,what is the dividend paid by this share?

Correct AnswerverifiedShow Answer

Kwik Lift Ltd will pay dividends of $4.75,$5.25,$5.75,and $7 for the next four years.Thereafter,the company expects its growth rate to be at a constant rate of 7 percent.If the required rate of return is 15 percent,what is the current market price of the share?

Correct AnswerverifiedShow Answer

Which one of the following statements is not true about ordinary shares?

Correct AnswerverifiedShow Answer

The term shareholder equity implies:

Correct AnswerverifiedShow Answer

Preference shares are sometimes regarded as a debt security because:

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