Chapter 7

Question 1

a protective feature on preferred stock that requires preferred dividends previously not paid to be disbursed before any common stock dividends can be paid.

Answer 1

Cumulative dividends

Question 2

The amount in excess of par value that a company must pay when it calls a security.

Answer 2

Call premium

Question 3

stocks of firms that traditionally pay large relatively constant dividends each year.

Answer 3

Income stocks

Question 4

stocks that generally pay little to no dividends so as to retain earnings to help fund growth opportunities.

Answer 4

Growth stocks

Question 5

a document giving one person the authority to act for another; typically it give him or her the power to vote share of common stock.

Answer 5

Proxy

Question 6

a provision in the corporate charter or bylaws that gives existing common stock holders the right to purchase new issuers of common stock on a pro rata basis.

Answer 6

Preemptive right

Question 7

common stock owned by the firms founders that has sole voting rights but generally pays out only restricted dividends is any for a specified number of years.

Answer 7

Classified stock

Question 8

certificates created by organizations such as banks, represents ownership in stocks of foreign companies that are held in trust by a bank located in the country where the stock is traded.

Answer 8

American depository receipts

Question 9

stock traded in countries other than the home country of the company, not including the United States.

Answer 9

Euro stock

Question 10

stock issued by foreign companies and traded in the United States

Answer 10

Yankee stock

Question 11

the price at which a stock sells in the market

Answer 11

Market price

Question 12

the value of an asset that in the mind of a particular investor is justified by the facts; intrinsic value can be different from the assets current market price, its book value, or both.

Answer 12

Intrinsic value

Question 13

the expected rate of change in dividends per share

Answer 13

Growth rate

Question 14

the minimum rate of return on a common stock that stockholders consider acceptable.

Answer 14

Required rate of return

Question 15

the expected dividend divided by the current price of a share of stock.

Answer 15

Dividend yield

Question 16

the change in price during a given year divided by the price at the beginning of the year.

Answer 16

Capital gains yield

Question 17

the rate of return that an individual stockholder expects to receive in common stock. it id equal to the expected dividend yield plus the expected capital.

Answer 17

Expected rate of return

Question 18

also called the Gordon model, it is used to find the value of a stock that is expected to experience constant growth.

Answer 18

Constant growth model

Question 19

the part of the life cycle of a firm in which its growth is either much faster or much slower than that of the economy as a whole.

Answer 19

Non-constant growth

Question 20

the current market price of a stock divided by the earnings per share.

Answer 20

P/E ratio

Question 21

an analytic method that seeks to evaluate the earnings generated by a firm to determine whether they are sufficient to compensate the suppliers of funds, both the bondholders are the stockholders.

Answer 21

Economic value added