Topic 6 Mastery*

Question 1

T/F

The main vote that shareholders have is to elect the Board of Directors

Answer 1

T

Question 2

In addition to voting, shareholders also have a claim on the firm’s assets, after all debts have been paid.

Answer 2

T

Question 3

You are considering investing in a firm The dividend on the company’s stock has not changed in the past ten years and most likely will not change in the foreseeable future. In this case, the most appropriate stock valuation model would be the _________ model.

growing perpetuity
constant growth
zero growth
negative dividend growth

Answer 3

zero growth

Question 4

In the formula r=(D1/P0)+Ggwhat does g represent?

the expected price appreciation yield from a common stock
the expected dividend yield from a common stock
the dividend yield from a preferred stock
the interest payment from a bond

Answer 4

the expected price appreciation yield from a common stock

Question 5

Common stock can be valued using the perpetuity formula if the:

dividends are not expected to grow
discount rate is expected to remain constant
investor does not intend to sell the stock
growth rate in dividends is not constant

Answer 5

dividends are not expected to grow

Question 6

Which of the following statements is correct about a stock currently selling for $50 per share that has 16% expected return and a 10% expected capital appreciation?

Its expected dividend exceeds the actual dividend
Its expected return will exceed the actual return
It is expected to pay $8 in annual dividends
It is expected to pay $3 in annual dividends

Answer 6

It is expected to pay $3 in annual dividends

Question 7

A stock’s ______ is found by dividing the stock’s annual dividend by its closing price.

  coupon rate 
  cost of capital 
  yield to maturity 
  investors’ required rate of return 
  current yield

Answer 7

current yield

Question 8

Matching those following investor behaviors theories

Regret theory

Answer 8

deals with the emotional reaction people experience after realizing they have made an error in judgment

Question 9

Matching those following investor behaviors theories

Prospect theory

Answer 9

suggests that people express a different degree of emotion toward gains then losses

Question 10

Matching those following investor behaviors theories

Herding

Answer 10

some investors rationalize their decision to buy certain stocks with “everyone else doing it”

Question 11

Matching those following investor behaviors theories

Anchoring

Answer 11

the tendency of investors to place more value on recent or even irrelevant information

Question 12

Matching those following investor behaviors theories

Confirmation bias

Answer 12

tendency to interpret new evidence as confirmation of one’s existing beliefs or theories

Question 13

Match the investment types

Mutual fund

Answer 13

investments that pool an investors money together with other investors to purchase shares of a collection of stocks, bonds or other securities, referred to as a portfolio

Question 14

Match the investment types

Index fund

Answer 14

.