HS 328-6 EXAM WITH COMPLETE SOLUTIONS
The capital gain a shareholder can reasonably expect when selling a stock is based on
the discounted present value of the stock's expected ______ cash flows _____ the stock is
sold. - ANSWER future / AFTER
The required return on stock is equal to the _____ rate plus the stock's _____ premium. -
ANSWER risk-free / risk (the return is all about the risk, as we know) (R R = risk plus
risk-free)
The _____ rate used to evaluate the expected future dividend stream is the same as the
required return. - ANSWER discount
A stock that is expected to pay a constant dividend forever can be valued by dividing the
______ by the appropriate ______ rate. - ANSWER dividend / discount (forever DAD)
The price of common stock should reflect the present value of its expected future
stream of __________ . - ANSWER dividends
When using the constant growth model, the price of a stock should equal the _____
period's dividend divided by (r - g). - ANSWER NEXT. constant growth is not about
current, it's about NEXT. Also, the POS equals an argy (r-g)
For the ________ model to apply, the discount rate must exceed the growth rate. -
ANSWER Constant growth (doegs grow constantly) (he's a doeg)
The expected income stream from common stock is much more __________ to determine
than that from bonds. - ANSWER difficult (bonds are more predictable than stocks, of
course!)
The price-to-PAST earnings ratio is always a _____ number that all analysts should be
able to agree upon. The price-to-FUTURE earnings ratio is always ______ and could well
vary among analysts. - ANSWER definitive / speculative (the past is known but we can
only speculate about the future)
, American Depository Receipts (ADRs) are listed on the over-the-counter market, the
NYSE and the NASDAQ. - ANSWER ADR's are ONN. (OTC, NYSE, NASDAQ)
An American Depository Receipt (ADR) is a negotiable certificate issued by a U.S. bank
representing a specified number of shares in a foreign stock that is traded on a U.S.
exchange. - ANSWER
Just like common stock, and even bonds, there can __________ issues/classes of
preferred stock outstanding at any point in time. - ANSWER multiple
An American Depository Receipt (ADR) could come into existence when the foreign
branch of a U.S. bank or its overseas correspondent bank acquires shares of stock
based in that foreign country and then issues certificates that represent claims upon
these shares. - ANSWER
Many Master Limited Partnerships (MLPs) trade on the _____ and the majority of MLPs
have been organized around oil and gas holdings for tax reasons. - ANSWER NYSE (NY
plays baseball MLP) (My Little Pony came from NY, it was oily and had gas)
_______ stock is a promise to pay a BONUS based on either the value of company shares
or the increase in their value over a period of time. - ANSWER Phantom
With stock appreciation rights (SARs) , a BONUS is based on the __________ in the
company's stock price over a specified period of time, no exercise price need be paid as
no stock is being purchased. - ANSWER appreciation - no stock is being purchased!
SARs typically provide the employee with a cash or stock payment based on the
increase in the value of a stated number of shares ___ a specific period of time. Phantom
stock provides a cash bonus based on the value of a stated number of shares, to be paid
out at the ___ of a specified period of time. - ANSWER over / END
Phantom stock may offer _____ equivalent payments; SARs would not. - ANSWER
dividend (the phantom dividend)
The capital gain a shareholder can reasonably expect when selling a stock is based on
the discounted present value of the stock's expected ______ cash flows _____ the stock is
sold. - ANSWER future / AFTER
The required return on stock is equal to the _____ rate plus the stock's _____ premium. -
ANSWER risk-free / risk (the return is all about the risk, as we know) (R R = risk plus
risk-free)
The _____ rate used to evaluate the expected future dividend stream is the same as the
required return. - ANSWER discount
A stock that is expected to pay a constant dividend forever can be valued by dividing the
______ by the appropriate ______ rate. - ANSWER dividend / discount (forever DAD)
The price of common stock should reflect the present value of its expected future
stream of __________ . - ANSWER dividends
When using the constant growth model, the price of a stock should equal the _____
period's dividend divided by (r - g). - ANSWER NEXT. constant growth is not about
current, it's about NEXT. Also, the POS equals an argy (r-g)
For the ________ model to apply, the discount rate must exceed the growth rate. -
ANSWER Constant growth (doegs grow constantly) (he's a doeg)
The expected income stream from common stock is much more __________ to determine
than that from bonds. - ANSWER difficult (bonds are more predictable than stocks, of
course!)
The price-to-PAST earnings ratio is always a _____ number that all analysts should be
able to agree upon. The price-to-FUTURE earnings ratio is always ______ and could well
vary among analysts. - ANSWER definitive / speculative (the past is known but we can
only speculate about the future)
, American Depository Receipts (ADRs) are listed on the over-the-counter market, the
NYSE and the NASDAQ. - ANSWER ADR's are ONN. (OTC, NYSE, NASDAQ)
An American Depository Receipt (ADR) is a negotiable certificate issued by a U.S. bank
representing a specified number of shares in a foreign stock that is traded on a U.S.
exchange. - ANSWER
Just like common stock, and even bonds, there can __________ issues/classes of
preferred stock outstanding at any point in time. - ANSWER multiple
An American Depository Receipt (ADR) could come into existence when the foreign
branch of a U.S. bank or its overseas correspondent bank acquires shares of stock
based in that foreign country and then issues certificates that represent claims upon
these shares. - ANSWER
Many Master Limited Partnerships (MLPs) trade on the _____ and the majority of MLPs
have been organized around oil and gas holdings for tax reasons. - ANSWER NYSE (NY
plays baseball MLP) (My Little Pony came from NY, it was oily and had gas)
_______ stock is a promise to pay a BONUS based on either the value of company shares
or the increase in their value over a period of time. - ANSWER Phantom
With stock appreciation rights (SARs) , a BONUS is based on the __________ in the
company's stock price over a specified period of time, no exercise price need be paid as
no stock is being purchased. - ANSWER appreciation - no stock is being purchased!
SARs typically provide the employee with a cash or stock payment based on the
increase in the value of a stated number of shares ___ a specific period of time. Phantom
stock provides a cash bonus based on the value of a stated number of shares, to be paid
out at the ___ of a specified period of time. - ANSWER over / END
Phantom stock may offer _____ equivalent payments; SARs would not. - ANSWER
dividend (the phantom dividend)
