1. Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings? A. dual classB. cumulativeC. non-cumulativeD. preferredE. common2. You cannot attend the shareholders meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called? A. alteringB. cumulative votingC. straight votingD. indenture agreementE. voting by proxy3. Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities? A. senior bondB. debentureC. warrantD. common stockE. preferred stock4. Callander Enterprises stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will occur in which one of the following markets? A. privateB. auctionC. exchange floorD. secondaryE. primary5. The secondary market is best defined by which one of the following? A. market in which subordinated shares are issued and resoldB. market conducted solely by brokersC. market dominated by dealersD. market where outstanding shares of stock are resoldE. market where warrants are offered and sold6. An agent who arranges a transaction between a buyer and a seller of equity securities is called a: A. broker.B. floor trader.C. capitalist.D. principal.E. dealer.7. A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a: A. floor trader.B. floor post.C. specialist.D. floor broker.E. commission broker.8. An individual on the floor of the NYSE who owns a trading license and buys and sells for his or her personal account is called a: A. floor trader.B. exchange customer.C. specialist.D. floor broker.E. market maker.9. An ECN is best described as: A. an electronic network which transmits orders directly to the floor of the NYSE.B. the network used in the primary market for selling newly issued shares.C. the international trading network of the NYSE.D. a website that allows individual investors to trade directly with one another.E. a computerized network used by independent brokers.10. An increase in which of the following will increase the current value of a stock according to the dividend growth model?I. dividend amountII. number of future dividends, provided the current number is less than infiniteIII. discount rateIV. dividend growth rateA. I and II onlyB. III and IV onlyC. I, II, and III onlyD. I, II, and IV onlyE. I, II, III, and IV11. Which one of the following is an underlying assumption of the dividend growth model? A. A stock has the same value to every investor.B. A stocks value is equal to the discounted present value of the future cash flows which it generates.C. A stocks value changes in direct relation to the required return.D. Stocks that pay the same annual dividend have equal market values.E. The dividend growth rate is inversely related to a stocks market price.12. Supernormal growth is a growth rate that: A. is both positive and follows a year or more of negative growth.B. exceeds a firms previous years rate of growth.C. is generally constant for an infinite period of time.D. is unsustainable over the long term.E. applies to a single, abnormal year.13. Which one of the following rights is never directly granted to all shareholders of a publicly-held corporation? A. electing the board of directorsB. receiving a distribution of company profitsC. voting either for or against a proposed merger or acquisitionD. determining the amount of the dividend to be paid per shareE. having first chance to purchase any new equity shares that may be offered14. Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company: A. must always show a current liability of $2,400, ($2.40 ? 1,000), for dividends payable.B. must still declare each dividend before it becomes an actual company liability.C. is obligated to pay $2.40 per share each year in perpetuity.D. will be declared in default if it does not pay at least $2.40 per share per year on a timely basis.E. has a liability that must be paid at a later date should the company miss paying an annual dividend payment.15. Which one of the following statements related to corporate dividends is correct? A. Dividends are nontaxable income to shareholders.B. Dividends reduce the taxable income of the corporation.C. The Chief Executive Officer of a corporation is responsible for declaring dividends.D. The Chief Financial Officer of a corporation determines the amount of dividend to be paid.E. Corporate shareholders may receive a tax break on a portion of their dividend income.16. Which one of the following transactions occurs in the primary market? A. purchase of 500 shares of GE stock from a current shareholderB. gift of 100 shares of stock to a charitable organizationC. gift of 200 shares of stock by a mother to her daughterD. a purchase of newly issued stock from AT&TE. IBMs purchase of GE stockInstructors Sample Problems Solved for Your ReferenceThis is just an illustration of similar problems you may encounter related to this topic.£ How much are you willing to pay for one share of Jumbo Trout stock if the company just paid a $0.70 annual dividend, the dividends increase by 1.6% annually, and you require a 10% rate of return? P(0) = D(0) x (1 + g) / (R g)P(0) = $0.70 x (1 + 1.6%) / (10% 1.6%) = $8.47£ Denver Shoppes will pay an annual dividend of $1.46 a share next year with future dividends increasing by 4.2% annually. What is the market rate of return if the stock is currently selling for $38.90 a share?P(0) = D(1) / (R g)P(0) = $38.90 = $1.46 / (R 4.2%); Solve for RR = 7.95%£ Roys Welding Supplies common stock sells for $38 a share and pays an annual dividend that increases by 3% annually. The market rate of return on this stock is 8.2%. What is the amount of the last dividend paid? P(0) = D(0) x (1 + g) / (R g)P(0) = $38 = D(0) x (1 + 3%) / (8.2% 3%); Solve for D(0)D(0) = $1.92£ National Warehousing just announced it is increasing its annual dividend to $1.18 next year and establishing a policy whereby the dividend will increase by 3.25% annually thereafter. How much will one share of this stock be worth 8 years from now if the required annual rate of return is 9.5%? P(8) = $1.18 x (1 + 3.25%)8 / (9.5% 3.25%) = $24.38SHOW YOUR CALCULATIONS FOR #17-#25.17. Ace Hardware paid an annual dividend of $1.25 per share last month. Today, the company announced that future dividends will be increasing by 2.5% annually. If you require a 11% annual rate of return, how much are you willing to pay to purchase one share of this stock today?18. Showboat Theatres has paid annual dividends of $0.32, $0.48, and $0.56 a share over the past three years, respectively. The company now predicts that it will maintain a constant dividend since its business has leveled off and sales are expected to remain relatively flat. Given the lack of future growth, you will only buy this stock if you can earn at least a 18% rate of return. What is the maximum amount you are willing to pay for one share of this stock today?19. Southern Gas recently paid a $2.75 annual dividend on its common stock. This dividend increases at an average rate of 4% per year. The stock is currently selling for $27.50 a share. What is the market rate of return?20. Rostraver Ice Gardens pays an annual dividend that is expected to increase by 4% per year. The stock commands a market rate of return of 12.5% per year and sells for $22.47 a share. What is the expected amount of the next dividend? 21. Trustycan Products common stock sells for $45.10 a share and has a market rate of return of 13%. The company just paid an annual dividend of $1.10 per share. What is the projected dividend growth rate? 22. CVS Pharmacy just paid a $3.25 annual dividend. The company has a policy of increasing the dividend by 3.5% annually. You would like to purchase stock in this firm but realize that you will not have the funds to do so for another four years. If you require a 14% annual rate of return, how much will you be willing to pay per share when you can afford to make this investment?23. Shares of SoHot Donuts common stock are currently selling for $15. Next years dividend is expected to be $1.50 per share and the market rate of return is 13%. At what rate is the dividend projected to be growing?24. Unique Catering wants to issue some 6% preferred stock that has a stated liquidating value of $100 a share. The company has determined that stocks with similar characteristics provide a 12.5% rate of return. What should the offer price be? 25. The preferred stock of Erie Railroad Ties pays an annual dividend of $8.20 and sells for $61.70 a share. What is the rate of return on this security?