BUSI 420 Exam 2 solutions complete answers

BUSI 420 Exam 2 solutions complete answers 

 

You analyze a firm's financial statements and invest based upon the results of this analysis. Which form of market efficiency may exist if you are able to earn abnormal profits on these investments?

 

The constant perpetual growth model is applicable to those firms which:

 

Use the data below to construct the Arms ratio on each of the five trading days. (Do not round intermediate calculations. Round your answers to 3 decimal places.)

 

You find the following order book on a particular stock. The last trade on the stock was at $22.14.

 

a. If you place a market buy order for 200 shares, at what price will it be filled? (Round your answer to 2 decimal places.)

 

b. If you place a market sell order for 100 shares, at what price will it be filled? (Round your answer to 2 decimal places.)

 

c. Suppose you place a market order to buy 500 shares. At what price will it be filled? Choose the appropriate answer.

 

Last year, John purchased 300 shares of Stock A at $30 a share. At the same time, he purchased 200 shares of Stock B at $45 a share. Today, Stock A is valued at $41 a share and Stock B is worth $52 a share. What is the relative strength of Stock A as compared to Stock B?

 

Given the following information, what is the value of the advance/decline line on the third day of this 3-day period?

 

Given the information below for Seger Corporation, compute the expected share price at the end of 2020 using price ratio analysis. Assume that the historical (arithmetic) average growth rates will remain the same for 2020. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

Could I Industries just paid a dividend of $1.67 per share. The dividends are expected to grow at a rate of 19 percent for the next four years and then level off to a growth rate of 5 percent indefinitely. If the required return is 13 percent, what is the value of the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Star Light & Power increases its dividend 3 percent per year every year. This utility is valued using a discount rate of 10 percent, and the stock currently sells for $53 per share. If you buy a share of stock today and hold on to it for at least three years, what do you expect the value of your dividend check to be three years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

If a firm has an EV of $1,050 million and EBITDA of $295 million, what is its EV ratio? (Round your answer to 2 decimal places.)

 

Carter Communications does not currently pay a dividend. You expect the company to begin paying a dividend of $2.40 per share in 14 years, and you expect dividends to grow perpetually at 3.4 percent per year thereafter. If the discount rate is 10 percent, how much is the stock currently worth? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Suppose the dividends for the Seger Corporation over the past six years were $2.52, $2.60, $2.69, $2.77, $2.87, and $2.92, respectively. Assume that the historical average growth rate will remain the same for 2020. Compute the expected share price at the end of 2020 using the perpetual growth method. Assume the market risk premium is 8.7 percent, Treasury bills yield 3.3 percent, and the projected beta of the firm is .98. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.6, a debt-to-equity ratio of .6, and a tax rate of 21 percent. Assume a risk-free rate of 6 percent and a market risk premium of 8 percent. Lauryn’s Doll Co. had EBIT last year of $53 million, which is net of a depreciation expense of $5.3 million. In addition, Lauryn's made $4.75 million in capital expenditures and increased net working capital by $3.1 million. Assume the FCF is expected to grow at a rate of 2 percent into perpetuity. What is the value of the firm? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

 

A certain stock has a beta of 1.5. If the risk-free rate of return is 5.1 percent and the market risk premium is 8.6 percent, what is the expected return of the stock? What is the expected return of a stock with a beta of 1.27? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

J Industries will pay a regular dividend of $.85 per share for each of the next four years. At the end of the four years, the company will also pay out a liquidating dividend of $79 per share, and the company will cease operations. If the discount rate is 9 percent, what is the current value of the company’s stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Lauryn’s Doll Co. had EBIT last year of $54 million, which is net of a depreciation expense of $5.4 million. In addition, Lauryn’s made $6.75 million in capital expenditures and increased net working capital by $2.9 million. Assume that Lauryn’s has a reported equity beta of 1.6, a debt-to-equity ratio of .9, and a tax rate of 21 percent. What is Lauryn’s FCF for the year?(Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

 

Lauryn’s asset beta is 1.17. Calculate the appropriate FCF discount rate assuming a risk-free rate of 2 percent and a market risk premium of 12 percent. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

 

Johnson Products earned $4.30 per share last year and paid a dividend of $1.65 per share. If ROE was 16 percent, what is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

The following three defense stocks are to be combined into a stock index in January 2019 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500.

 

b. What is the rate of return on this index for the year ending December 31, 2019? For the year ending December 31, 2020? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $95, $400, and $102, respectively. If Able undergoes a 2-for-3 reverse stock split, what is the new divisor? (Do not round intermediate calculations. Round your answer to 5 decimal places.)

 

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $72, $400, and $98, respectively. If Baker undergoes a 3-for-2 stock split, what is the new divisor for the price-weighted index? (Do not round intermediate calculations. Round your answer to 5 decimal places.)

 

Assume the value-weighted index level was 280.98 at the beginning of the year. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Xytex Products just paid a dividend of $2.17 per share, and the stock currently sells for $40. If the discount rate is 13 percent, what is the dividend growth rate? 

 

Which of the following are forms of market efficiency?

 

A preliminary document provided to investors who are interested in a stock offering is called a(n):

 

Which one of the following prices will an investor pay to purchase shares of stock that are currently outstanding?

 

Which of the following are common characteristic of the OTCBB market?

low stock prices
dual listings with NASDAQ
high percentage price changes
thinly traded securities
 

Which one of the following describes an ECN?

 

The dividend discount model assumes that:

 

A firm's current stock price divided by the firm's revenue per share is referred to as which one of the following ratios?

 

The Free Cash Flow Model:

can be used to value a company with negative earnings.
is based on a firm having positive cash flows.
requires that a firm pay a dividend.
directly estimates a value for a firm's equity.
 

Which one of the following statements concerning beta is correct?

 

The net income per share divided by the market price per share is called the:

 

Which of the following are offered as possible causes of the January effect?

new professional money managers who assume the role at the beginning of the year
tax loss selling in December
bonus lock-in effect
window dressing
 

If the S&P 500 falls by 20 percent, the NYSE will:

 

Which one of the following would best reveal how stock prices react when competitive firms merge?

 

The January effect:

 

The minimum price at which a security is expected to trade is called the:

 

Which of the following are considered in the computation of money flows?

I. last trade price

II. current trade price

III. volume of each trade

IV. time of each trade

 

Which one of the following is the tendency to believe that random events that occur in clusters are not really random?

 

Which one of the following defines frame dependence?

 

 

Bright Detergent is issuing new shares of stock which will trade on NASDAQ. If Sally purchases 300 of these shares, the trade will occur in which one of the following markets?

 

Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets?

 

Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n):

 

A firm that specializes in arranging financing for companies is called a(n): 

 

The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is called:

 

The financing provided for new ventures that are frequently high-risk investments is referred to as "venture ________ ".

 

Main Supplies is a publicly-traded firm with 250,000 shares of stock outstanding. If the firm issues an additional 10,000 shares, those shares will be referred to as a(n):

 

Under the provisions of a general cash offer, shares of stock are offered to: 

 

A public offering of securities which are offered first to current shareholders is called a(n):

 

The difference between the price an underwriter pays an issuer and the underwriter's offering price is called the:

 

When a group of underwriters jointly work together to sell a new issue of securities, the underwriters form a(n):

 

When an underwriting syndicate purchases an entire issue of new securities and accepts the risk of unsold shares, the underwriting is known as a ________ underwriting.

 

When the issuer assumes the risk for any shares the underwriters cannot sell, the underwriting is known as a ________ underwriting.

 

When the price of newly issued shares is determined by competitive bidding the underwriting is known as a ________ underwriting.

 

Which one of the following is the federal agency which regulates the financial markets in the U.S.?

 

The document that must be prepared in order to receive approval for a stock offering is called a:

 

A securities dealer is a(n): 

 

Which one of the following best describes a broker? 

 

Which one of the following prices will an individual investor receive if he or she sells shares of Intel?

 

The profit a dealer makes on a purchase and resale of shares of stock is called the: 

 

A private equity fund:

I. is set up as a limited partnership

II. usually uses a 2/20 fee structure

III. place no constraints on manager compensation

IV. typically have a stated life of 7 to 10 years

 

Which of the following is correct regarding the compensation paid to private equity fund managers?

 

An owner of a trading license on the NYSE is called a: 

 

An NYSE Supplemental Liquidity Provider:

I. can trade the same stocks as designated market makers

II. can trade only from offices outside the exchange

III. must quote bid or ask quotes a certain percent of the day

IV. is paid 30 cents per 100 shares traded

 

The party who serves as a dealer for a few securities on an exchange floor and is obligated to maintain an orderly market for those securities is called a:

 

A trading floor broker: 

 

The NYSE's Super Display Book is an electronic system which: 

 

A NYSE member who trades only for his or her own account is called a(n): 

 

The location on an exchange floor where a particular security trades is called a(n): 

 

You want to sell shares of stock at the current price. Which type of order should you place?

 

An order to buy shares of stock at a stated price or less is called a order. 

 

An order to sell that involves a preset trigger point is called a ________ order. 

 

A market centered on dealers buying and selling for their own inventories is called a(n): 

 

Inside quotes are the: 

 

The off-exchange market in which exchange-listed securities trade is referred to as the ________ market.

 

The market where individual investors directly trade exchange-listed securities with other individual investors is referred to as the _______ market.

 

Which of the following types of indexes is a stock market index in which stocks are held in proportion to their share price?

 

When stocks are held in an index in proportion to their total company market value, the index is:

 

An index is valued on a daily basis. However, some stocks in this particular index have not traded recently. As a result, this index suffers from index:

 

Which one of the following statements concerning the NYSE is correct? 

 

Which of the following are common sources of venture capital?

I. private individuals

II. NASDAQ

III. university endowment funds

IV. insurance companies

 

Which one of the following statements concerning venture capital is correct? 

 

How long is the "lock-up" period that is commonly found in an IPO underwriting contract?

 

Which one of the following can be assumed when the SEC approves an IPO registration?

 

Which one of the following transactions occurs in the primary market? 

 

Trey currently owns 545,000 shares of ABC stock. He will sell those shares for $17.10 a share. He is also willing to purchase additional shares for $17.07 a share. Trey is a securities:

 

Alexis is an individual investor. She purchases shares at the ________ price and sells at the ________ price.

 

What is the current structure of the NYSE? 

 

In 2007, NYSE Holdings merged with which one of the following? 

 

In order to currently trade on the floor of the NYSE, members must: 

 

Which one of the following has the greatest duty to provide liquidity to the financial market?

 

The SuperDOT system has lessened the role of which one of the following? 

 

Which one of the following statements related to the NYSE Hybrid market is correct? 

 

To be listed on the NYSE, a firm must have at least: 

 

Lucas wants to sell 9,000 shares of stock and places a market order. The floor broker is unable to arrange the sale with another floor broker so the specialist agrees to "stop" the stock. What has the specialist agreed to do?

 

The duties of a specialist include which of the following?

I. maintain an orderly market

II. offer a higher bid price than the floor brokers

III. provide liquidity to the market

IV. purchase all shares offered as limit sell

 

Fay placed an order to sell 500 shares of stock she currently owned. As soon as the order reached the trading floor, the shares were immediately sold. Which type of order did Faith place?

 

Sam placed a limit order to sell 500 shares of stock at $14 a share. Which of the following does Sam know for sure?

I. His order will execute but the time of execution is unknown.

II. His order may never execute.

III. He will receive exactly $7,000 if his order executes.

IV. He could receive more, but not less, than $14 a share.

 

Kelly wants to sell 600 shares of DeLuxe stock at the going market price after the stock reaches $42 a share. Which type of order should she place?

 

After the trigger point is reached, a stop-loss order will be executed at the: 

 

Which one of the following orders is frequently used as a means to limit losses resulting from a short sale?

 

Mark just placed a stop limit order to sell 100 shares at $21 stop, $18 limit. Which one of the following statements is correct concerning this order if the current market price is $16?

 

NASDAQ dealers post which one of the following in addition to their bid and ask prices?

 

NASDAQ has which of the following characteristics?

I. trading floor

II. computer network

III. specialist system

IV. multiple market makers

 

Which one of the following statements concerning NASDAQ is correct? 

 

The orders displayed on NASDAQ are placed by: 

 

Stocks which are listed on the NYSE can: 

 

The stocks listed on the Pink Sheets:

 

The DJIA is an index of the stock prices of ________ firms. 

 

Stock market indexes: 

 

Which one of the following is the primary flaw of a price-weighted index? 

 

Which one of the following statements related to stock indexes is correct? 

 

Alcorn Metals just sold 1.5 million shares through an IPO offering. The shares were offered at $31.50 a share and all shares were sold. The firm received a total of $50,200,000 for this issue. What was the spread?

 

Reliant Underwriters has agreed to a firm commitment underwriting in which they will pay $36.75 million in exchange for 3 million shares of stock for an IPO offering. The offering price is expected to be $13.50 a share. How much will the underwriters earn if all of the shares can be sold?

 

In a recent IPO, the Sausage Co. offered 1.4 million shares of stock at an offer price of $16 a share. The underwriting was conducted on a best efforts basis with a spread of 7.0 percent. The Sausage Co. received a total of $20,079,868.00 in sale proceeds. How many shares were sold?

 

A best efforts IPO underwriting consisted of 1.5 million shares at an offer price of $25 a share. The underwriter's fee was set at 6.65 percent. How many shares were sold if the issuer received $42,900,000?

 

ML Underwriters paid an issuer $37,694,528 as IPO proceeds. The IPO offered 1.86 million shares of which 1.835 million were sold at an offer price of $21.85 a share. The underwriting spread was 7.25 percent. What type of underwriting was this? 

 

DT Metals is offering 700 shares in a Dutch auction IPO. The following bids have been received:

Bidder Quantity Price

A 100 $ 24

B 200 22

C 200 22

D 300 21

E 600 20

What will the gross proceeds be for this offering?

 

Moonlight is offering 1,100 shares in a Dutch auction IPO. The following bids have been received:

Bidder Quantity Price

A 200 $ 18

B 100 18

C 400 17

D 400 16

E 200 16

How much will Moonlight receive from this offering if the underwriter's fee is 6.5 percent?

 

Mason Materials is offering 800 shares in a Dutch auction IPO. The following bids have been received:

Bidder Quantity Price

A 200 $ 28

B 300 27

C 100 27

D 500 26

E 900 25

How many shares will be allocated to Bidder A?

 

Juno Markets is offering 900 shares in a Dutch auction IPO. The following bids have been received:

Bidder Quantity Price

A 100 $ 18

B 300 $ 18

C 400 $ 16

D 200 $ 15

E 800 $ 14

How much will Bidder B have to spend to purchase all of the shares that have been allocated to him?

 

An index consists of the following securities and has an index divisor of 3.0. What is the price-weighted index return?

Stock Shares O/S Begin Price End Price

A 3,500 $ 20 $ 24

B 6,000 $ 15 $ 10

C 4,000 $ 28 $ 36

 

An index consists of the following securities and has an index divisor of 3.0. What is the price-weighted index return?

Index

Stock

Shares OS

Beginning

Share Price

Ending

Share Price

D 1,000 $ 26 $ 32

E 4,000 $ 30 $ 28

F 3,000 $ 19 $ 22

 

An index consists of the following securities and has an index divisor of 3.0. What is the price-weighted index return?

Stock

Shares Outstanding

Beginning Share

Price

Ending Share Price

A 4,000 $ 21 $ 16

L 1,000 $ 49 $ 61

S 3,000 $ 37 $ 38

 

An index consists of the following securities and has an index divisor of 2.0. What is the price-weighted index return?

Index Stock

Shares OS

Beginning Share

Price

Ending Share Price

S 4,800 $ 55 $ 51

T 3,500 $ 32 $ 36

 

A price-weighted index consists of stocks A, B, and C which are priced at $38, $21, and $26 a share, respectively. The current index divisor is 2.7. What will the new index divisor be if stock B undergoes a 3-for-1 stock split?

 

A price-weighted index consists of stocks A, B, and C which are priced at $50, $35, and $15 a share, respectively. The current index divisor is 2.75. What will the new index advisor be if stock A undergoes a 5-for-1 stock split?

 

A price-weighted index consists of stocks A, B, and C which are priced at $30, $12, and $18 a share, respectively. The current index divisor is 2.40. If stock C undergoes a 1- for-3 reverse stock split, the new index divisor will be:

 

An index consists of the following securities. What is the value-weighted index return? 

Value-weighted

Stock

Shares O/S

Beginning Share

Price

Ending Share Price

T 5,000 $ 20 $ 28

Z 2,000 $ 38 $ 40

 

An index consists of the following securities. What is the value-weighted index return? 

Stock

Shares Outstanding

Beginning Share

Price

Ending Share Price

C 1,000 $ 32 $ 38

K 4,000 $ 22 $ 23

S 6,000 $ 57 $ 55

 

An index consists of the following securities. What is the value-weighted index return?

Stock Shares O/S Begin Price End Price

C 4,500 $ 18 $ 22

T 7,500 $ 12 $ 11

W 3,500 $ 32 $ 36

 

You have the following information: 

Stock

Shares Outstanding

Beginning Share

Price

Ending Share Price

A 1,000 $ 35 $ 38

B 2,000 $ 22 $ 23

You want the beginning price-weighted index of these two stocks to be 100. Given this, what is the ending index value?

 

You have the following information: 

Stock Shares OS BOY Price EOY Price

L 3,000 $ 15 $ 18

K 57,000 $ 31 $ 35

You want the beginning price-weighted index of these two stocks to be 500. Given this, what is the ending index value?

 

An index has a market value of $695,200 at the beginning of the period and $741,900 at the end of the period. If you want the beginning index value to be 100, what is the ending index value?

 

Assume the DJIA closed at 15,150 last night. The divisor is 0.123017848. Assume that 29 of the stocks in the index were unchanged today. One stock increased in value from $44.80 a share yesterday to $47.90 a share today. What is the DJIA index value at the close of trading today?

 

Yesterday, the DJIA closed at 12,309.16. The divisor is 0.123017848. Today, every one of the stocks in the index increased in value by $0.40 a share. What is the value of today's closing DJIA?

 

An order book displays the following information: 

Buy Orders Sell Orders

Shares Price Shares Price

200 $ 18.15 100 $ 18.17

300 $ 18.14 500 $ 18.18

100 $ 18.14 100 $ 18.19

You place a market order to sell 200 shares. At what price will your order be executed?

 

An order book displays the following information: 

Buy Orders Sell Orders

Shares Price Shares Price

100 $ 18.07 100 $ 18.11

500 $ 18.06 500 $ 18.12

300 $ 18.05 100 $ 18.12

You place an order to sell 100 shares. At what price will your order be executed?

 

Aurora Metals just sold 2 million shares through an IPO offering. The shares were offered at $23.50 a share and all shares were sold. The firm received a total of $50,200,000 for this issue. What was the spread?

 

Southaven Inc. is offering 1,000 shares in a Dutch auction IPO. The following bids have been received:

Bidder Quantity Price

A 300 $ 25

B 200 25

C 500 22

D 400 21

E 200 20

How much will the firm receive from this offering if the underwriter's fee is 7.5 percent?

 

An index consists of the following securities and has an index divisor of 2.0. What is the price-weighted index return?

Stock Shares O/S Begin price End Price

X 4,200 $ 35 $ 36

Y 3,800 $ 30 $ 29

 

An index consists of the following securities. What is the value-weighted index return? Stock Shares O/S Begin Price End Price

H 5,000 $ 18 $ 22

I 7,500 $ 12 $ 11

J 2,000 $ 32 $ 36

 

An order book displays the following information: 

Buy Orders Sell Orders

Shares Price Shares Price

200 $ 18.15 100 $ 18.17

300 $ 18.14 500 $ 18.18

100 $ 18.14 100 $ 18.19

You place a market order to sell 500 shares. What will be the total you receive for your order?

 

Which one of the following terms is used to identify the evaluation method that determines the value of a stock by reviewing a firm's financial statement in conjunction with other financial and economic information?

 

The method of valuing a stock based on the present value of the future income derived from that stock is called:

 

The model used to value a stock that pays a dividend which increases at a constant rate forever is referred to as which one of the following? Assume the growth rate is less than the discount rate.

 

How is a sustainable dividend growth rate defined? 

 

The portion of net income that is held by a firm, for future growth, comprises which one of the following balance sheet accounts?

 

What is the percentage of a firm's earnings that is distributed to shareholders called? 

 

What is the percentage of a firm's net income which is reinvested in the firm to support future growth called?

 

The model used to value the stock of a firm which has a short-term growth rate that varies from its long-term growth rate is called the ________ dividend growth model.

 

What is beta? 

 

What is the accounting relationship in which earnings per share minus dividends equal the change in book value per share called?

 

What is the market value of a share of stock divided by the net income per share called? 

 

Growth stocks are frequently described as having which one of the following characteristics?

 

The price-book ratio is computed as the market value per share divided by the per share book value of:

 

An analysis of which of the following are commonly included as part of fundamental analysis?

I. sales

II. book value

III. earnings per share

IV. cash flow

 

Based on the dividend discount model, an increase in which of the following will lower the current value of a stock?

I. amount of the next dividend

II. dividend growth rate

III. discount rate

 

The constant perpetual growth model assumes the: 

 

The constant perpetual growth model is applicable primarily to those firms which: 

 

Which one of the following is a correct formula for computing a geometric average dividend growth rate?

 

The arithmetic average dividend growth rate is: 

 

The retention ratio is the: 

 

An increase in the retention ratio will: 

 

A decrease in which one of the following will increase a firm's sustainable rate of growth?

 

The sustainable growth rate is equal to: 

 

Hypo Tech expects its net income to grow at 20 percent a year for the next two years and then taper off to a constant 5 percent annual rate of growth. The firm maintains a constant dividend payout ratio. Which one of the following models is best suited for computing the current value of this firm's stock?

 

Which one of the following is a requirement of the two-stage dividend growth model? 

 

Which one of the following is correct concerning the two-stage dividend growth model? 

 

How will the price of a stock be affected if the dividend growth rate is decreased? 

 

Which one of the following will increase the current residual income of a firm? 

 

Which one of the following models can be used to value the stock of a firm that maintains a one hundred percent retention ratio?

 

Which of the following have the same meaning as the term "economic value added"?

I. abnormal earnings

II. residual income

III. value created by a firm in period t

IV. EPSt - Bt-1× k

 

Which one of the following correctly expresses the clean surplus relationship

 

Which one of the following statements related to the price-earnings (P/E) ratio is correct?

 

Which one of the following is used as an indicator that a firm has good-quality earnings? 

 

Which one of the following is the most common definition of cash flow as used in the price-cash flow ratio?

 

The price-sales ratio helps measure the ability of a firm to generate: 

 

You would like to know the value of a firm's equity today in relation to the cost of that equity. Which one of the following ratios will provide you with this information?

 

America Boats plans to pay a $2.10 a share dividend at the end of each of the next 2 years. At the end of year 3, it will pay a final liquidating dividend of $13 a share. After that, the company plans to close its doors permanently. What is the current value of this stock at a discount rate of 12 percent?

 

Upwind Tours just announced that it will pay an annual dividend of $3.60 a share one year from now. Two years from now, the company expects to pay a $28 a share liquidating dividend. After that, the company will cease operations. What is the current value per share at a discount rate of 12.5 percent?

 

Lakeside Sheet Metal is downsizing and plans on completely closing 3 years from now. The firm's liquidation plan calls for annual dividends of $3, $6, and $36 over the next 3 years, respectively. What is the current value of this stock given a discount rate of 14 percent?

 

Alpha Wood Interiors announced today that it is going out of business. As of today, no more regular dividends will be paid. The firm will, however, pay two liquidating dividends. The first will be paid one year from now in the amount of $15 a share. The second and final payment will be paid two years from now at an estimated $40 a share. What is the value of this stock today at a discount rate of 16 percent?

 

Blue Water Tours just paid an annual dividend of $0.80 a share. The firm has a policy of increasing the dividend by 3.5 percent annually. What is the current value of this stock at a discount rate of 11.5 percent?

 

Precision Engineering recently announced that its next annual dividend will be $1.20 per share with later dividends increasing by 2.5 percent annually. What is the current value of this stock to you if you require a 12 percent rate of return?

 

The Barclay House increases its dividend each year. The next annual dividend is expected to be $1.75 a share. Future dividends will increase by 4 percent annually. What is the current value of this stock if the discount rate is 10 percent?

 

Long Life Floors just paid an annual dividend of $0.82 a share and plans on increasing future dividends by 2 percent annually. The discount rate is 15 percent. What will the value of this stock be 5 years from today?

 

Wilson's Furniture is experiencing good growth so has decided to commence paying dividends starting next year. The first dividend will be $0.50 a share with annual increases of 4 percent in the dividend amount. The discount rate is 10 percent. What will the value of this stock be four years from now?

 

The Back Room just paid an annual dividend of $1.50 a share. The firm expects to pay dividends forever and to increase the dividend by 4.5 percent annually. What is the expected value of this stock six years from now if the discount rate is 12 percent?

 

Main Street Antiques is planning on paying an annual dividend of $2.20 per share next year. The company is slowly downsizing and is decreasing its dividend by 3 percent annually. What is the current value of this stock at a discount rate of 8 percent?

 

You are considering buying shares of stock in the Steel Mill. The forecast for the firm is steady growth over the next decade. The firm just paid its annual dividend of $1.42 per share and has plans to increase that amount by 4 percent annually indefinitely. You require a 12.5 percent return on this type of security. What is your estimate of the value of this stock ten years from now?

 

BP Industries stock is valued at $11.50 a share. The firm pays annual dividends at an increasing rate of 3.0 percent annually. Next year's dividend will be $1.15 per share. What is the required return on this stock?

 

Wholesale Foods common stock is valued at $11.05 per share. The firm pays annual dividends which increase at a constant rate. The last dividend paid was $1.20. The required return is 12 percent. What is the dividend growth rate?

 

A stock sells for $12.36 a share and has a required return of 9 percent. Dividends are paid annually and increase at a constant 3 percent per year. What is the amount of the last dividend paid?

 

Factory Stores pays annual dividends and increases those dividends by 3 percent each year. The stock is currently valued at $11.80 a share and has a required return of 14 percent. You own 500 shares of this stock. What is the total amount of dividend income you should expect to receive next year?

 

The common stock of JL Recyclers has a required return of 12 percent and a current value of $18.72. The company pays its dividend annually and increases the amount by 4 percent each year. You own 300 shares of this stock. What was the total amount of the last dividend you received?

 

The Rug Barn has paid annual dividends of $1.30, $1.36, $1.40, $1.42, and $1.45 over the last 5 years, respectively. What is the geometric average dividend growth rate? 

 

A firm has paid annual dividends of $1.34, $1.43, $1.55, $1.62, $1.64, and $1.75 per share over the past 6 years, respectively. What is the geometric average growth rate for these dividends?

 

Over the past 5 years, DL Insulation has paid annual dividends of $1.40, $1.55, $1.70, $1.73, and $1.77 per share. What is the geometric average dividend growth rate for this period?

 

The Brown Jug has paid annual dividends of $0.61, $0.64, $0.71, $0.82, and $0.88 per share over the past 5 years, respectively. What is the geometric average dividend growth rate for this period?

 

Dennison Mfg. pays annual dividends. For the past six years, the firm has paid dividends of $1.10, $1.15 $1.20, $1.25, $1.30, and $1.35, respectively. What is the geometric average dividend growth rate for this time period?

 

Over the past 4 years, a local firm has paid annual dividends of $1.52, $1.55, $1.60, and $1.68. What is the arithmetic average dividend growth rate?

 

Blue Water Tours has paid annual dividends of $2.10, $2.12, $2.15, $2.15, and $2.22 over the past 5 years, respectively. What is the arithmetic average growth rate for these dividends?

 

Knit 'n Needle started paying dividends 4 years ago. The annual dividends thus far have been $0.35, $0.38, $0.42, and $0.48, respectively. What is the arithmetic average dividend growth rate?

 

Roy's Markets has net income of $164,000. The firm has 200,000 shares of common stock outstanding. The dividend for this year is $0.61 per share. What is the retention ratio?

 

Detroit Imports has a dividend payout ratio of 40 percent and annual dividends of $2.60 per share. What is the retention ratio?

 

Home Interiors has net income of $258,000. The firm has decided to pay $140,000 of that income out to the shareholders. What is the firm's retention ratio?

 

Art Supplies has a net income of $138,600. The firm has $1.25 million in assets and $500,000 in liabilities. What is the return on equity?

 

Oak Supply has earnings per share of $1.22. The firm has $840,000 in equity and 60,000 shares of stock outstanding. What is the return on equity?

 

Western Adventures has earnings per share of $2.30 and dividends per share of $1.25. The total equity of the firm is $850,000. There are 40,000 shares of stock outstanding. What is the sustainable rate of growth?

 

The Grand Isle has 12,000 shares of stock outstanding at a market price of $31.60 per share. The book value per share is $12.08. The firm has earnings per share of $1.86 and a dividend payout ratio of 0.40. What is the firm's sustainable rate of growth?

 

Wilkinson and Daughters has net income of $415,400, total assets of $2.2 million, and total liabilities of $1.08 million. The company paid $270,000 in dividends. What is the firm's sustainable rate of growth?

 

The Watermelon Patch has a retention ratio of 0.75, dividends of $50,000, and total equity of $3.5 million. What is the firm's sustainable rate of growth?

 

Southern Foods just paid an annual dividend of $1.10 a share. Management estimates the dividend will increase by 10 percent a year for the next four years. After that, the annual dividend growth rate is estimated at 3.2 percent. The required rate of return is 12 percent. What is the value of this stock today?

 

The common stock of A.G. Tailor has a required return of 16 percent. The latest press release stated that last year's dividend was $0.90 per share and that future dividends will increase by 15 percent for the following 3 years. After that, the dividend growth rate will be 3 percent indefinitely. What is one share of this stock worth to you today?

 

Mountain View Nursery is a relatively young firm which just paid its first annual dividend of $0.35 a share. Management projects dividend increases of 12 percent per year for five years followed by a constant growth rate of 3 percent annually. What is this stock worth today if the applicable discount rate is 11 percent?

 

The last dividend paid by New Technologies was an annual dividend of $1.40 a share. Dividends for the next 3 years will be increased at an annual rate of 8 percent. After that, dividends are expected to increase by 3 percent each year. The discount rate is 16 percent. What is the current value of this stock?

 

Ultra Fine Furnishings is in the process of selling its peripheral businesses and focusing on its upscale clients. In conjunction with this reorganization, the dividend will be decreased by 10 percent for the next three years. After that, the dividend will resume increasing at an annual rate of 5 percent. The required return on this stock is 14 percent and the last dividend paid was $2.40 a share. What is one share of this stock worth today?

 

Perry Adventures last annual dividend was $0.70 a share. The firm will increase the dividend by 5 percent for the next 4 years and thereafter increase the dividend by 3 percent annually. What is this stock worth today if the required return is 10 percent?

 

Newcomer Mills is a relatively new firm which will retain all of its earnings for the next four years. Four years from now, the firm expects to pay its first dividend of $0.25 a share. After that, it intends to increase the dividend by 4 percent annually. What is the value of this stock today at a discount rate of 12 percent?

 

Best Value Outlet recently announced that it intends to pay dividends of $0.40, $0.60, $0.75, and $1.00 per share over the next four years, respectively. After that, the plan is to increase the dividend by 3.5 percent annually. What is the current value of this stock if the applicable discount rate is 13.5 percent?

 

Quality Home Made Ice Cream has plans to pay decreasing annual dividends of $1.60, $1.50, and $1.35 over the next three years, respectively. After that, the firm will increase the dividend by 5 percent each year. What is the value of this stock today at a discount rate of 11 percent?

 

The Shoe Box will not pay a dividend for the next two years. The following two years, it will pay annual dividends of $1 per share. Starting in year 5, the dividends will increase by 4 percent annually. The discount rate is 8 percent. What is the value of this stock today?

 

The current book value per share of B.L. Black & Sons is $5.35 and the required return on the stock is 15.5 percent. The firm expects earnings per share of $2.25 next year with annual earnings growth of 4.5 percent. What is the current market value of this stock?

 

The Diamond Outlet has current earnings per share of $2.20 and an expected earnings growth rate of 2.3 percent. The required return on the stock is 14 percent and the current book value per share is $15.25. What is the current market value of this stock?

 

Leslie Apparel has a current book value per share of $5.15 and current earnings per share of $1.13. The required return is 14 percent and the expected earnings growth rate is 4.5 percent. What is one share of this stock worth today?

 

A firm has a current book value per share of $21.10 and a market price per share of $37.57. Next year's earnings are expected to be $5.60 per share and the expected earnings growth rate is 2.5 percent. What is the required rate of return on this stock?

 

Lambert Corporation reported net income of $60 million for last year. Depreciation expense totaled $20 million and capital expenditures came to $5 million. Free cash flow is expected to grow at a rate of 4.5% for the foreseeable future. Lambert faces a 40% tax rate and has a 0.45 debt to equity ratio with $255 million (market value) in debt outstanding. Lambert's equity beta is 1.30, the risk-free rate is currently 5% and the market risk premium is estimated to be 6.5%. What is the current total value of Lambert's equity (in millions)?

 

Beach & Company reported net income of $40 million for last year. Depreciation expense totaled $18 million and capital expenditures came to $8 million. Free cash flow is expected to grow at a rate of 5% for the foreseeable future. Beach faces a 40% tax rate and has a 0.50 debt to equity ratio with $200 million (market value) in debt outstanding. Beach's equity beta is 1.25, the risk-free rate is currently 4.5% and the market risk premium is estimated to be 8%. What is the current total value of Beach & Company (in millions)?

 

McKenzie, Inc. reported net income of $8.5 million for last year. Depreciation expense totaled $5 million and capital expenditures came to $2 million. Free cash flow is expected to grow at a rate of 2.5% for the foreseeable future. McKenzie faces a 40% tax rate and has a 0.50 debt to equity ratio with $20 million (market value) in debt outstanding. McKenzie's equity beta is 1.4, the risk- free rate is currently 5% and the market risk premium is estimated to be 7.5%. McKenzie has 10 million shares of common stock outstanding. What is the current value of a share of McKenzie stock?

 

Standard, Inc. reported net income of $35 million for last year. Depreciation expense totaled $20 million and capital expenditures came to $7 million. Free cash flow is expected to grow at a rate of 6% for the foreseeable future. Stuart faces a 40% tax rate and has a 0.40 debt to equity ratio with $120 million (market value) in debt outstanding. Standard's equity beta is 1.25, the risk-free rate is currently 5% and the market risk premium is estimated to be 7.5%. What is the current value (in millions) of Standard's equity?

 

A firm has net income of $198,500 and total equity of 1.15 million. There are 220,000 shares of stock outstanding at a price per share of $14.80. What is the firm's price-earnings ratio?

 

L.B. Jay has net income of $38,000, total assets of $437,000, total liabilities of $208,000, and a price-book ratio of 3.8. There are 60,000 shares of stock outstanding. What is the firm's price-earnings ratio?

 

Miller's Farm has 120,000 shares of stock outstanding, sales of $850,000, and net income of $55,000. Financial analysts believe the price-earnings ratio for this firm should be 15.8. Given this information, what should be the current stock price?

 

Electronics Galore has historically had a P/E ratio of 22.1. This ratio is considered a good estimate of the future ratio. The firm currently has EPS of $1.78. These earnings are expected to increase by 5.0 percent next year. What is the expected price of this stock one year from now?

 

Historically, Jones Trucking has had a P/E ratio of 14.6. The firm has current net income of $92,000 with 85,000 shares of stock outstanding. The EPS growth rate is 4.5 percent. What is the expected price of this stock one year from now?

 

The Retail Box has a historical P/CF ratio of 21.5. The current CFPS is $1.42 and the projected CFPS growth rate is 5.6 percent. The current EPS is $1.02. What is the expected price of this stock one year from now?

 

The Satellite Shoppe has current sales per share of $10.55. The sales per share are expected to increase at an annual rate of 12 percent. The historical P/E ratio is 16.2 and the historical P/S ratio is 9.8. What is the expected price of this stock one year from now?

 

Currently, Southern Foods has sales of $1.32 million, net profit of $521,400, and 125,000 shares of stock outstanding. The sales and net profit are each expected to grow by 6 percent annually. The historical P/S ratio is 7.8. What is the expected price of this stock one year from now?

 

Cayman Boats plans to pay a $1.75 a share dividend at the end of each of the next 2 years. At the end of year 3, it will pay a final liquidating dividend of $25 a share. After that, the company plans to close its doors permanently. What is the current value of this stock at a discount rate of 10 percent?

 

The Boston House increases its dividend each year. The next annual dividend is expected to be $2.25 a share. Future dividends will increase by 5.0 percent annually. What is the current value of this stock if the discount rate is 13 percent?

 

CB Industries stock is valued at $16.80 a share. The firm pays annual dividends at an increasing rate of 4.5 percent annually. Next year's dividend will be $1.90 per share. What is the required return on this stock?

 

A firm has paid annual dividends of $1.41, $1.43, $1.55, $1.62, $1.64, and $1.68 per share over the past 6 years, respectively. What is the geometric average growth rate for these dividends?

 

Bait 'n Tackle started paying dividends 4 years ago. The annual dividends thus far have been $0.50, $0.55, $0.60, and $0.65, respectively. What is the arithmetic average dividend growth rate?

 

Canadian Adventures has earnings per share of $2.86 and dividends per share of $1.80. The total equity of the firm is $750,000. There are 38,000 shares of stock outstanding. What is the sustainable rate of growth?

 

Georgia Nursery is a relatively young firm which just paid its first annual dividend of $0.50 a share. Management projects dividend increases of 15 percent per year for five years followed by a constant growth rate of 5.0 percent annually. What is this stock worth today if the applicable discount rate is 10 percent?

 

Comfort Ice Cream has plans to pay decreasing annual dividends of $1.75, $1.60, and $1.45 over the next three years, respectively. After that, the firm will increase the dividend by 4 percent each year. What is the value of this stock today at a discount rate of 12 percent?

 

Lansing Corporation reported net income of $65 million for last year. Depreciation expense totaled $15 million and capital expenditures came to $6 million. Free cash flow is expected to grow at a rate of 4.5% for the foreseeable future. Lansing faces a 40% tax rate and has a 0.35 debt to equity ratio with $260 million (market value) in debt outstanding. Lansing' equity beta is 1.35, the risk-free rate is currently 5% and the market risk premium is estimated to be 6.5%. What is the current total value of Lansing's equity (in millions)?

 

Toys Galore has historically had a P/E ratio of 18.5. This ratio is considered a good estimate of the future ratio. The firm currently has EPS of $2.10. These earnings are expected to increase by 5.0 percent next year. What is the expected price of this stock one year from now?

 

Which one of the following states that investors cannot consistently earn positive excess returns?

 

Security A and Security B have similar risks. However, Security A has a higher rate of return than Security B. The return on Security A minus the return on Security B is referred to as which one of the following?

 

Which one of the following terms is used to describe a stock price that moves over time creating no discernible pattern?

 

Which one of the following is a research method used to study the effects news has on stock prices?

 

Which one of the following returns is computed as the observed return minus the expected return?

 

Which type of trader is defined as one who decides to trade securities based on publicly available information and analysis?

 

Which one of the following terms best describes the information you know about a company that will have a significant effect on the price of the company's stock once that information is released?

 

The day-of-the-week effect is defined as the tendency for which day of the week to have a negative average rate of return?

 

Which one of the following correctly identifies the phenomenon that states that one month has the greatest tendency for small stocks to earn large returns?

 

Which one of the following terms is used to describe a market situation where prices are much higher than either fundamental or rational analysis would tend to support?

 

Which one of the following terms is used to describe a sudden and significant collapse in market prices?

 

Which one of the following terms is used to identify the NYSE rules which slow or stop trading when the DJIA declines by more than a specified amount during a trading session?

 

Which one of the following is required for a trader to earn excess profits? 

 

Stocks A, B, and C have identical risks. Stock A earns an annual return of 9.9 percent as compared to 9.6 percent returns on stocks B and C. Given this, you can correctly assume that:

 

In an efficient market, stocks with similar risks will: 

 

Which one of the following will automatically occur if all investors are rational? 

 

Efficient markets tend to exist: 

 

Independent deviations from rationality: 

 

The term "independent deviations from rationality" implies that: 

 

Arbitrage traders: 

 

You are the chief financial officer of Davidson Industries. On multiple occasions, you have engaged in insider trading but have never been able to earn any abnormal returns. Which form of market efficiency most likely exists given your situation?

 

Which one of the following best describes the type(s) of information included in a strong-form efficient market?

 

If the financial markets were regulated such that the markets maintained strong-form efficiency, then:

 

Which of the following are ineffective strategies for producing excess returns if the market is semistrong-form efficient?

I. graphing past prices searching for patterns

II. watching the daily market movements

III. studying the latest analyst's reports

IV. analyzing a firm's financial statements

 

You analyze a firm's financial statements and invest based upon the results of this analysis. Which form of market efficiency must exist if you are able to earn excess profits on these investments?

 

Ann uses two approaches to trading stocks. First, she trades on what she believes is a repetitive pattern as seen in Dotson Co's historical prices. Secondly, she analyzes the financial statements of The Allen Co. to compute changes in the return on equity as a predictor of future stock prices for that firm. She trades based on both strategies. Ann earns excess profits on her return on equity strategy but not on her historical prices strategy. This suggests that the market is at least _________ efficient but less than efficient.

 

If the market is semistrong-form efficient, then which one of the following statements is true?

 

Which form of market efficiency exists if the market is efficient only in regard to historical information?

 

Which of the following will lead to excess profits in a semistrong-form efficient market?

I. private financial information

II. historical price trends

III. financial analysts reports

IV. unreleased merger plans

 

Research on semistrong-form efficient markets indicates which one of the following is correct?

 

If you believe that stock market prices follow a random walk, then: 

 

Two weeks ago Acme Electronics announced that it had developed a new chip design which was being considered by major companies for use in future smart phone development. At the close of trading the day before the announcement, Acme common stock closed at $20. On the day following the announcement, Acme closed at $21. Two days after the announcement the stock closed at $22.50. Four days after the announcement the stock traded at $23. Last week, Acme stock traded at $26, a level it has maintained since then. This is an example of a(n):

 

Dover Lumber announced last week that its unpopular CEO had resigned. In response to this announcement, the firm's stock price increased from $17 a share to $23 a share. The following day the price declined to $21 a share and has remained constant at that level. This is an example of a(n):

 

Last week, Newtown Plastics announced that it had developed a new plastic container that is stronger and more durable, yet easier to recycle. In response to this announcement, the firm's stock price rose from $21 a share to a high of $27 a share and has remained at that level. This is an example of a(n):

 

Which one of the following involves the study of a firm's stock price for the few days surrounding a news announcement?

 

In an efficient market, daily abnormal returns: 

 

How should cumulative abnormal returns react in an efficient market? 

 

Which of the following sources of information are used by informed traders?

I. financial statements

II. inside information

III. internet reports

IV. analysts reports

 

Which one of the following statements is correct? 

 

Tom is an engineer for Talbot Tech and has just discovered a revolutionary method for strengthening metals. He knows this knowledge will add value to Talbot Tech's stock. Tom happens to mention this discovery and its value to his neighbor, Fred. Fred can be charged with insider trading if he:

 

Which one of the following is most apt to be considered insider trading? 

 

Which one of the following items is most apt to be considered material non-public information? Assume that none of this information is known publicly.

 

Helen is the chief executive officer of Baker Holdings (BEH). She owns 1.2 million shares of BEH stock and wishes to sell 10 percent of those shares to diversify her holdings. She follows the SEC requirements, along with those of her firm, and proceeds with the sale on Monday, June 9. On Tuesday, June 10, BEH stock declines by 25 percent. Helena's stock trade is:

 

Which one of the following statements related to insider trading is correct? 

 

Which one of the following relates to the risk-adjustment problem encountered when testing market efficiency?

 

Which one of the following best describes the current understanding of market efficiency?

 

If the financial markets are highly efficient, then: 

 

If the markets are efficient, then why is asset allocation still considered important? 

 

Moving money in and out of the market based on your market expectations is called ________ and tends to lead to returns that are ________ than the overall market return, assuming that the market is relatively efficient.

 

Market timing tends to lead to: 

 

Studies indicate that the Vanguard 500 Index fund tends to: 

 

Which one of the following statements is correct?

 

The day-of-the-week effect refers to which trading day

 

Over the past 65 years, which day of the week, on average, has the lowest average rate of return?

 

Market prices tend to ________ earnings "surprises". 

 

Which one of the following statements describes an investment strategy that may lead to profitable results based on current research findings?

 

Which one of the following statements concerning the stock market is correct? 

 

Over the time period of 1929 to 1932, the stock market lost approximately ________ percent of its value.

 

Approximately how many years did it take for the stock market to recover from the bear market of 1929 to 1932?

 

Which of the following are offered as factors contributing to the Crash of October 1987?

I. bubble bursting

II. market volatility

III. negative economic signals

IV. activities in Congress

 

Which of the following occurred during the Crash of 1987?

I. market prices were kept up-to-date which increased investors' anxiety

II. the market declined another 5 percent within the 2 days following the crash

III. trading volume exceeded the exchange's capacities

IV. NASDAQ went off-line

 

Which one of the following occurred following the Crash of 1987? 

 

Which of the following factors contributed to the Crash of 1987?

I. irrational investors

II. program trading

III. panic selling

IV. price uncertainty

 

Immediately following the Crash of 1987, the stock market: 

 

If the S&P 500 falls by 7 percent, the NYSE will: 

 

The NYSE circuit breakers are recalculated: 

 

The primary purpose of the NYSE circuit breakers is to: 

 

From the end of 1989 to the spring of 2003, the Nikkei Index declined in value approximately ________ percent.

 

The Asian stock market crash of 1990 was followed by a: 

 

The value of the Amex Internet Index increased by about _________ percent from October 1998 to March 2000 and subsequently declined by about _________ percent by October 2002.

 

By the end of 2002, the AMEX Internet Index was at a level approximately equal to _____ percent of the index high.

 

The following are the daily returns for both the overall market and for Alpha Inc. What is the cumulative abnormal return on Alpha, Inc., stock for these 5 days?

Date R(m) Alpha

24-Oct 1.50 % 1.20 %

25-Oct – 0.40 % 0.10 %

26-Oct – 0.10 % 1 %

27-Oct 0.30 % – 0.50 %

28-Oct 0.60 % – 0.70 %

 

Over the past 5 days, the common stock of Taylor Mfg. had daily returns of 0.2, –0.1, –0.2, 0.3, and 0.1 percent, respectively. For the same 5 days, the market had daily returns of 0.1, 0.3, –0.4, 0.4, and 0.2 percent, respectively. What is the cumulative abnormal return on Taylor Mfg. stock for this time period?

 

Samson Co. announced its merger plans on October 25 and had a daily return of 0.7 percent. Thompson Co. announced its merger plans on October 26 and had a daily return of 0.4 percent. The Whitewood Co. announced its merger plans on October 27 and had a daily return of –0.6 percent. The daily market returns for October 25 through October 27 were 0.2, –0.3, and 0.4, respectively. What is the combined cumulative abnormal return for the announcement date?

 

A.C. Pharmaceutical announced FDA approval for a new drug on October 12th. X.Y.Drug Co. announced approval for its new drug on October 14th. No other information was released that would affect returns over the period. What is the combined cumulative abnormal return for the 5 day period commencing 2 days prior to the approval announcement date? Use the following data to answer this question. No trading occurred on October 15th and 16th.

Date Market AC Return XY Return

10-Oct 0.20 % 0.10 % 0.00 %

11-Oct 0.10 % 0.20 % – 0.10 %

12-Oct 0.00 % 0.60 % 0.30 %

13-Oct – 0.10 % 0.40 % 0.20 %

14-Oct – 0.20 % – 0.50 % 0.30 %

17-Oct 0.10 % – 0.30 % – 0.10 %

18-Oct – 0.10 % – 0.10 % – 0.40 %

 

The following are the daily returns for both the overall market and for Omega Inc. What is the cumulative abnormal return on Omega, Inc., stock for these 5 days?

Date R(m) Omega

24-Nov 1.20 % 1.20 %

25-Nov – 0.40 % 0.10 %

26-Nov – 0.10 % 1.00 %

27-Nov 0.40 % – 0.50 %

28-Nov 0.50 % – 0.70 %

 

Over the past 5 days, the common stock of Scott Mfg. had daily returns of 0.3, –0.2, 0.3, 0.1 , and 0.1 percent, respectively. For the same 5 days, the market had daily returns of 0.2, 0.4, –0.5, 0.3, and 0.1 percent, respectively. What is the cumulative abnormal return on Scott Mfg. stock for this time period?

 

Samson Co. announced its merger plans on October 25 and had a daily return of 0.7 percent. Thompson Co. announced its merger plans on October 26 and had a daily return of 0.4 percent. The Whitewood Co. announced its merger plans on October 27 and had a daily return of 0.1 percent. The daily market returns for October 25 through October 27 were 0.1, –0.3, and 0.4, respectively. What is the combined cumulative abnormal return for the announcement date?

 

Ace. Pharmaceutical announced FDA approval for a new drug on December 3. West.Drug Co. announced approval for its new drug on December 5. No other information was released that would affect returns over the period. What is the combined cumulative abnormal return for the 5 day period commencing 2 days prior to the approval announcement date? Use the following data to answer this question. No trading occurred on December 6th and 7th.

Date Market Ace Return West Return

1-Dec 0.30 % 0.10 % 0.10 %

2-Dec 0.20 % 0.20 % – 0.20 %

3-Dec 0.10 % 0.70 % 0.30 %

4-Dec 0.00 % 0.50 % 0.20 %

5-Dec – 0.10 % – 0.40 % 0.40 %

8-Dec 0.10 % – 0.30 % – 0.10 %

9-Dec – 0.20 % – 0.10 % – 0.20 %

 

What is the area of finance called that addresses issues such as how reasoning errors affect investment decisions?

 

Which one of the following is the basis for prospect theory? 

 

Mental accounting is the process of associating a stock with its: 

 

Loss aversion is defined as:

 

Representativeness heuristic is best explained as: 

 

The belief that information you hold is superior to information held by other investors best describes:

 

An unwillingness to take a risk after a loss describes: 

 

Which one of the following best describes heuristics? 

 

The concept that well-capitalized, rational traders may be unable to correct a mispricing defines which one of the following terms?

 

Which one of the following is a trader whose trades are not based on meaningful financial analysis or information?

 

Which one of the following risks is related to irrational beliefs? 

 

Technical analysis studies which of the following as the basis for trading? 

 

Dow theory is a method of predicting future market movements based on which of the following Dow Jones averages?

I. industrial

II. transportation

III. utilities

IV. commodities

 

According to Elliott wave theory, market predictions should be based on which one of the following?

 

The maximum price at which a security is expected to trade is called the: 

 

The measure of performance of one investment compared to another investment is called the:

 

Prospect theory is based on the concept that investors are: 

 

Which one of the following statements is correct regarding prospect theory? 

 

Patrick is a contestant on a game show. At this point in the game, he can either accept $500 or spin a wheel for a chance of winning $100,000. Which type of behavior is he displaying if he spins the wheel?

 

Investors tend to make better decisions when looking at a decision: 

 

Which one of the following is an example of mental accounting? 

 

According to the concept of loss aversion, individual investors are most apt to do which one of the following?

 

According to the concept of house money, individual investors are most apt to do which one of the following?

 

Peter hesitates when it comes to picking an individual stock to purchase as he feels that he will later realize that a different stock would have been a better investment. Peter is suffering from:

 

The tendency to overvalue an item because you own it is referred to as which one of the following?

 

Yesterday, Krista stated that Overland stock was only worth $12 a share and since it was selling for $15 a share, she declared it overpriced and refused to buy any shares. This morning, she learned that she is inheriting 3,500 shares of Overland stock from her grandmother. Suddenly, she is saying that Overland stock is a great buy at $15 and is probably worth at least $17 a share. This is an example of which one of the following? 

 

Ted constantly ignores the effects of inflation on money. Ted is suffering from which one of the following?

 

Investors who tend to invest too heavily in the securities issued by their employer suffer from the condition known as:

 

Which one of the following statements appears to be correct based on current research? 

 

The increased cash flows into mutual funds that have recently had superior returns is most associated with which one of the following characteristics?

 

Tricia has lost money on a particular stock for the past three years. Thus, she believes the stock will have a high positive rate of return this year because earning a good return is long overdue. This assumption is best described as the:

 

Four of the last five stocks your investment adviser recommended have outperformed the market.Thus, you believe that if you continue to follow her advice, that 80 percent of your investments will outperform the market over the long term. This belief is based on the:

 

According to the theory of recency bias, investors tend to believe the financial markets will:

 

Which one of the following is a characteristic of the self-attribution bias? 

 

Which of the following are impediments to the correction of a security's mispricing?

I. sentiment-based risk

II. implementation costs

III. firm-specific risk

IV. noise trader risk

 

Which one of the following market sentiment index (MSI) values represents the best buying opportunity?

 

Which one of the following market sentiment index (MSI) values indicates that all polled investors were bearish?

 

Which one of the following indicates the long-run direction of the market according to Dow Theory?

 

What is the primary purpose of Dow theory? 

 

According to Dow theory, which one of the following is the primary means of eliminating secondary market trends?

 

If you are a proponent of the Elliott wave theory, you are most apt to do which one of the following?

 

According to technical analysis, which one of the following is best seen as a buying opportunity?

 

You recently heard a news announcer state that the market is approaching its support level. Which one of the following is the best interpretation of that statement?

 

Which one of the following advance/decline lines is the most bullish signal? 

 

Which of the following are bullish indicators?

I. flat advance/decline line

II. breakout of a support level

III. Arms ratio of .38

IV. heavy advancing volume

 

If the closing tick of the day is +32, this means that the: 

 

Which one of the following Arms values is the most bearish? 

 

For the past year, a particular stock has a relative strength value of 1.03 as compared to the market. This means that the stock:

 

A "block trade" is a trade in excess of how many shares? 

 

Which one of the following statements is correct concerning an open-high-low-close bar chart?

 

According to technical analysts, pricing patterns such as the head and shoulders are indicators of potential:

 

Which one of the following is correct concerning a head and shoulders top pattern? 

 

Which one of the following statements is correct regarding moving averages? 

 

Assume the 50-day moving average is currently intersecting the 200-day moving average. Also assume the 50-day average is downward sloping and the 200-day average is upward sloping. Which one of the following statements is accurate based on this information?

 

Bollinger bands:

 

A stock's price has been relatively constant for an extended period of time. In this instance, the Bollinger bands are:

 

Investors who use the MACD indicator as a signal for trading are most apt to buy a security when the MACD:

 

Assume a stock's price remains relatively stable while the money flow becomes highly positive. Which one of the following is most expected given this scenario?

 

Fibonacci numbers: 

 

Some technical analysts use Fibonacci numbers to predict: 

 

Which one of the following is seen as a bearish indicator? 

 

A survey of 75 of your fellow classmates determines that 29 of them are bullish on the market while the remainder is bearish. What is the market sentiment index for this group of individuals?

 

A recent survey indicates that 1,731 people are bearish on the market for every 1,000 that are bullish. What is the value of the market sentiment index based on this information?

 

Given the following information, what is the value of the advance/decline line on the third day of this 3-day period?

Issues

Advancing

Issues

Declining

Day 1 1,315 1,416

Day 2 1,650 1,128

Day 3 1,300 1,312

 

Given the following information, what is the value of the advance/decline line on the second day of this 3-day period?

Advancing Declining

Day 1 1425 1206

Day 2 1560 1654

Day 3 1498 1454

 

Given the following information, what is the value of the closing Arms? 

Issues

Advancing

Issues

Declining

Advancing

Volume

Declining

Volume

1,512 1,310 851,325,120 621,433,125

 

Given the following information, what is the value of the closing Arms?

Issues

Advancing

Issues

Declining

Advancing

Volume

Declining

Volume

914 2,463 318,106,250 2,408,493,0404

 

Last year, Kate purchased 4 shares of stock A at $40 a share. At the same time, she purchased 6 shares of stock B at $40 a share. Today, stock A is valued at $56 a share and stock B is worth $42 a share. What is the relative strength of stock A as compared to stock B?

 

What is the 3-day simple moving average as of day 5, given the following information?

Day Closing Price

1 $ 36.09

2 34.87

3 35.01

4 35.16

5 35.89

6 35.92

7 36.10

 

What is the 4-day simple moving average as of day 7, given the following information? 

Day Closing Price

1 $ 44.10

2 $ 44.14

3 $ 44.06

4 $ 44.61

5 $ 42.83

6 $ 42.65

7 $ 43.13

 

What is the 3-day exponential moving average as of day 4 assuming that a weight of 70 percent is placed on the most recent price?

Day Closing Price

1 $ 21.40

2 22.60

3 21.05

4 20.80

5 21.00

6 21.25

7 21.30

 

What is the 3-day exponential moving average as of day 5 assuming that a weight of 60 percent is placed on the most recent price?

Day Closing Price

1 $ 38.19

2 $ 39.11

3 $ 39.07

4 $ 39.03

5 $ 39.13

6 $ 39.18

7 $ 39.14

 

Given the following information, what is the net money flow at the end of the trading day?

Price Volume

17

18 8,600

17 9,800

17 6,500

16 5,700

 

Given the following information, what is the net money flow at the end of the trading day?

Price Volume

25

26 6,000

26 7,500

24 3,500

25 6,000

 

The series of Fibonacci numbers contains the sequential values of 610 and 987. What is the next number in this series?

 

The price of a stock increased from $32 to $38. Using phi, what are the primary and secondary support areas for the stock?

 

Cleveland Train stock increased from $20 a share to $27 a share. Based on phi, what are the primary and secondary support areas for this stock?

 

A survey of 55 of your fellow classmates determines that 16 of them are bullish on the market while the remainder is bearish. What is the market sentiment index for this group of individuals?

 

Last year, John purchased 300 shares of stock A at $30 a share. At the same time, he purchased 200 shares of stock B at $40 a share. Today, stock A is valued at $41 a share and stock B is worth $52 a share. What is the relative strength of stock A as compared to stock B?

E) 1.18

 

Given the following information, what is the net money flow at the end of the trading day?

Price Volume

30

31 4,000

31 3,500

29 7,500

32 2,000

 

Assume the following information concerning two stocks that make up an index. What is the price-weighted return for the index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

You are given the following information concerning two stocks that make up an index.

 

Assume that you want to reindex with the index value at the beginning of the year equal to 100. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Assume the value-weighted index level was 326.95 at the beginning of the year. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Assume the following information concerning two stocks that make up an index. What is the value-weighted return for the index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500.

 

a. Calculate the initial value of the index if a value-weighting scheme is used. (Round your answer to 2 decimal places.)

 

b. What is the rate of return on this index for the year ending December 31, 2016? For the year ending December 31, 2017? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

You are given the following total market values for an index over a five-year period. Assuming the index starts at 1,000, calculate the index value each year. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

A certain stock has a beta of 1.35. If the risk-free rate of return is 4 percent and the market risk premium is 7.5 percent, what is the expected return of the stock? What is the expected return of a stock with a beta of 1.31? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Johnson Products earned $4.35 per share last year and paid a dividend of $1.70 per share. If ROE was 17 percent, what is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Lauryn’s Doll Co. had EBIT last year of $45 million, which is net of a depreciation expense of $4.5 million. In addition, Lauryn’s made $4.25 million in capital expenditures and increased net working capital by $4.1 million. Assume that Lauryn’s has a reported equity beta of 1.5, a debt-to-equity ratio of 0.3, and a tax rate of 40 percent. What is Lauryn’s FCF for the year? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

 

Lauryn’s asset beta is 1.18. Calculate the appropriate FCF discount rate assuming a risk-free rate of 2 percent and a market risk premium of 11 percent. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

 

You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.7, a debt-to-equity ratio of 0.7, and a tax rate of 20 percent. Based on this information, what is the asset beta for Lauryn’s? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Suppose the dividends for the Seger Corporation over the past six years were $1.38, $1.46, $1.55, $1.63, $1.73, and $1.78, respectively. Assume that the historical average growth rate will remain the same for 2017. Compute the expected share price at the end of 2017 using the perpetual growth method. Assume the market risk premium is 9.9 percent, Treasury bills yield 3.6 percent, and the projected beta of the firm is 0.94. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Star Light & Power increases its dividend 2.5 percent per year every year. This utility is valued using a discount rate of 12 percent, and the stock currently sells for $48 per share. If you buy a share of stock today and hold on to it for at least three years, what do you expect the value of your dividend check to be three years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.4, a debt-to-equity ratio of 0.6, and a tax rate of 40 percent. Assume a risk-free rate of 4 percent and a market risk premium of 10 percent. Lauryn’s Doll Co. had EBIT last year of $43 million, which is net of a depreciation expense of $4.3 million. In addition, Lauryn's made $7 million in capital expenditures and increased net working capital by $4.0 million. Assume the FCF is expected to grow at a rate of 4 percent into perpetuity. What is the value of the firm? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

 

If a firm has an EV of $510 million and EBITDA of $133 million, what is its EV ratio? (Round your answer to 2 decimal places.)

 

Xytex Products just paid a dividend of $2.47 per share, and the stock currently sells for $48. If the discount rate is 12 percent, what is the dividend growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Could I Industries just paid a dividend of $1.30 per share. The dividends are expected to grow at a rate of 15 percent for the next five years and then level off to a growth rate of 6 percent indefinitely. If the required return is 12 percent, what is the value of the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Given the information below for Seger Corporation, compute the expected share price at the end of 2017 using price ratio analysis. Assume that the historical average growth rates will remain the same for 2017. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

Use the data below to construct the advance/decline line for the stock market. Volume figures are in thousands of shares. (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to the nearest whole number.)

 

A group of investors was polled each week for the last five weeks about whether they were bullish or bearish concerning the market. Construct the market sentiment index for each week based on these polls. (Do not round intermediate calculations. Round your answers to 4 decimal places.)

 

The table below shows the closing monthly stock prices for IBM and Amazon. Calculate the exponential three-month moving average for both stocks where two-thirds of the average weight is placed on the most recent price. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

You are given the following information concerning the trades made on a particular stock. Calculate the money flow for the stock based on these trades. (Leave no cells blank - be certain to enter "0" wherever required. A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest whole dollar.)

 

A stock had the following trades during a particular period. What was the money flow for the stock? (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Do not round intermediate calculations. Round your answers to the nearest whole dollar.)

 

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $39, $315, and $116, respectively. If Baker undergoes a 3-for-2 stock split, what is the new divisor for the price-weighted index? (Do not round intermediate calculations. Round your answer to 5 decimal places.)

 

On November 14, Thorogood Enterprises announced that the public and acrimonious battle with its current CEO had been resolved. Under the terms of the deal, the CEO would step down from his position immediately. In exchange, he was given a generous severance package. Given the information below, calculate the cumulative abnormal return (CAR) around this announcement. Assume the company has an expected return equal to the market return. (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 1 decimal place.)

 

Leisure Lodge Corporation is expected to pay the following dividends over the next four years: $16.00, $10.00, $6.00 and $2.50. Afterwards, the company pledges to maintain a constant 3 percent growth rate in dividends forever. If the required return on the stock is 10 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Below you will find the closing stock prices for eBay over a three-week period. Calculate the simple three-day and five-day moving averages for the stock. (Round your answers to 2 decimal places.)

 

The following order book exists for a particular stock. The last trade on the stock was at $32.09.

 

a.  If you place a market buy order for 100 shares, at what price will it be filled? (Round your answer to 2 decimal places.)

 

b. If you place a market sell order for 200 shares, at what price will it be filled? (Round your answer to 2 decimal places.)

 

c. Suppose you place a market order to buy 350 shares. At what price will it be filled? Choose the appropriate answer.

 

Ross Co., Westerfield, Inc., and Jordan Company announced a new agreement to market their respective products in China on July 18 (7/18), February 12 (2/12), and October 7 (10/7), respectively. Given the information below, calculate the cumulative abnormal return (CAR) for these stocks as a group. Assume all companies have an expected return equal to the market return. (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 1 decimal place.)

 

Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a dividend of $4.40 per share in 12 years, and you expect dividends to grow perpetually at 5.9 percent per year thereafter. If the discount rate is 16 percent, how much is the stock currently worth? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

The table below shows the closing monthly stock prices for IBM and Amazon. Calculate the simple three-month moving average for each month for both companies. (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance):

 

a. Calculate the initial value of the index if a price-weighting scheme is used.

 

b. What is the rate of return on this index for the year ending December 31, 2016? For the year ending December 31, 2017? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Use the data below to construct the advance/decline line and Arms ratio for the market. Volume is in thousands of shares. (Input all amounts as positive values. Do not round intermediate calculations. Round your "Arms Ratio" to 3 decimal places.)

 

JJ Industries will pay a regular dividend of $2.90 per share for each of the next four years. At the end of the four years, the company will also pay out a liquidating dividend of $65 per share, and the company will cease operations. If the discount rate is 12 percent, what is the current value of the company’s stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Construct the Arms ratio on each of the five trading days. (Do not round intermediate calculations. Round your answers to 3 decimal places.)

 

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $55, $312, and $92, respectively. If Able undergoes a 3-for-4 reverse stock split, what is the new divisor? (Do not round intermediate calculations. Round your answer to 5 decimal places.)