FINANCIAL MARKETS CHAPTER 13
QUESTIONS WITH COMPLETE
SOLUTION
(I) A share of common stock in a firm represents an ownership interest in that firm.
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(II) A share of preferred stock is as much like a bond as it is like common stock. - Both are true
Preferred stockholders hold a claim on assets that has priority over the claims of - common stockholders,
but after that of bondholders.
(I) Preferred stockholders hold a claim on assets that has priority over the claims of common
stockholders, but after that of bondholders.
(II) Firms issue preferred stock in far greater amounts than common stock. - (I) is true, (II) false.
(I) Preferred stockholders hold a claim on assets that has priority over the claims of common
stockholders. (II) Bondholders hold a claim on assets that has priority over the claims of preferred
stockholders. - Both are true
(I) Firms issue common stock in far greater amounts than preferred stock.
(II) In a given year, the total volume of stock issued is much less than the volume of bonds issued. - Both
are true
The riskiest capital market security is - common stock
(I) The largest of the organized stock exchanges in the United States is the New York Stock Exchange.
(II) To be listed on the NYSE, a firm must have a minimum of $100 million in market value or $10 million
in revenues. - (I) is true, (II) false.
To list on the NYSE, a firm must - meet have earnings of at least $10 million per year and have a total of
$100 million in market value requirements.
A share of common stock in a firm represents an ownership interest in that firm and allows stockholders
to - vote and receive dividends.
Securities not listed on one of the exchanges trade in the over-the-counter market. In this exchange,
dealers "make a market" by - -buying stocks for inventory when investors want to sell
-selling stocks from inventory when investors want to buy
The most active stock exchange in the world is the - A) Nikkei Stock Exchange.
Which of the following statements about trading operations in an organized exchange is correct? - In
most trades, specialists match buy and sell orders.
, What is NOT an advantage of Electronic Communications Networks (ECNs)? - ECNs work well for thinly
traded stocks.
What is FALSE regarding Electronic Communications Networks (ECNs)? - ECNs allow institutional
investors, but not individuals, to trade after hours.
What is an advantage of Electronic Communications Networks (ECNs)? - -all unfilled orders are available
for review by ECN traders
-transactions costs are lower for ECN trades
-trades are made and confirmed faster
What is true regarding Electronic Communications Networks (ECNs)? - -archipelago and Instinet are two
examples of ECNs
-competition from ECNs has forced NASDAQ to cut its fees
-traders benefit from lower trading costs and faster service
What is the primary disadvantage of an ETF? - Investors have to pay a broker commission each time they
buy or sell shares.
In 2013, the NYSE traded ________ shares on an average trading day. - 4 billion
Exchange traded funds (ETFs) have which of the following features? - -they are listed and traded as
individual stocks on a stock exchange
-they are indexed rather than actively managed
-their value is based on the underlying net asset value of the stocks held in the index basket
A basic principle of finance is that the value of any investment is - The present value of all future net cash
flows generated by the investment
A high price earnings ratio (PE) gives what interpretation? - The market expects the earnings to rise in
the future.
A ________ PE may indicate that the market feels the firm's earnings are very ________ risk and is
therefore willing to pay a ________ for them. - high; low; premium
A stock currently sells for $25 per share and pays $0.24 per year in dividends. What is an investor's
valuation of this stock if she expects it to be selling for $30 in one year and requires a 15 percent return
on equity investments? - $26.30
A stock currently sells for $30 per share and pays $1.00 per year in dividends. What is an investor's
valuation of this stock if he expects it to be selling for $37 in one year and requires a 12 percent return
on equity investments? - $33.93
In the one-period valuation model, a stock's value will be higher - the higher its expected future price is.
In the one-period valuation model, a stock's value falls if the ________ rises. - required return on equity
QUESTIONS WITH COMPLETE
SOLUTION
(I) A share of common stock in a firm represents an ownership interest in that firm.
j
(II) A share of preferred stock is as much like a bond as it is like common stock. - Both are true
Preferred stockholders hold a claim on assets that has priority over the claims of - common stockholders,
but after that of bondholders.
(I) Preferred stockholders hold a claim on assets that has priority over the claims of common
stockholders, but after that of bondholders.
(II) Firms issue preferred stock in far greater amounts than common stock. - (I) is true, (II) false.
(I) Preferred stockholders hold a claim on assets that has priority over the claims of common
stockholders. (II) Bondholders hold a claim on assets that has priority over the claims of preferred
stockholders. - Both are true
(I) Firms issue common stock in far greater amounts than preferred stock.
(II) In a given year, the total volume of stock issued is much less than the volume of bonds issued. - Both
are true
The riskiest capital market security is - common stock
(I) The largest of the organized stock exchanges in the United States is the New York Stock Exchange.
(II) To be listed on the NYSE, a firm must have a minimum of $100 million in market value or $10 million
in revenues. - (I) is true, (II) false.
To list on the NYSE, a firm must - meet have earnings of at least $10 million per year and have a total of
$100 million in market value requirements.
A share of common stock in a firm represents an ownership interest in that firm and allows stockholders
to - vote and receive dividends.
Securities not listed on one of the exchanges trade in the over-the-counter market. In this exchange,
dealers "make a market" by - -buying stocks for inventory when investors want to sell
-selling stocks from inventory when investors want to buy
The most active stock exchange in the world is the - A) Nikkei Stock Exchange.
Which of the following statements about trading operations in an organized exchange is correct? - In
most trades, specialists match buy and sell orders.
, What is NOT an advantage of Electronic Communications Networks (ECNs)? - ECNs work well for thinly
traded stocks.
What is FALSE regarding Electronic Communications Networks (ECNs)? - ECNs allow institutional
investors, but not individuals, to trade after hours.
What is an advantage of Electronic Communications Networks (ECNs)? - -all unfilled orders are available
for review by ECN traders
-transactions costs are lower for ECN trades
-trades are made and confirmed faster
What is true regarding Electronic Communications Networks (ECNs)? - -archipelago and Instinet are two
examples of ECNs
-competition from ECNs has forced NASDAQ to cut its fees
-traders benefit from lower trading costs and faster service
What is the primary disadvantage of an ETF? - Investors have to pay a broker commission each time they
buy or sell shares.
In 2013, the NYSE traded ________ shares on an average trading day. - 4 billion
Exchange traded funds (ETFs) have which of the following features? - -they are listed and traded as
individual stocks on a stock exchange
-they are indexed rather than actively managed
-their value is based on the underlying net asset value of the stocks held in the index basket
A basic principle of finance is that the value of any investment is - The present value of all future net cash
flows generated by the investment
A high price earnings ratio (PE) gives what interpretation? - The market expects the earnings to rise in
the future.
A ________ PE may indicate that the market feels the firm's earnings are very ________ risk and is
therefore willing to pay a ________ for them. - high; low; premium
A stock currently sells for $25 per share and pays $0.24 per year in dividends. What is an investor's
valuation of this stock if she expects it to be selling for $30 in one year and requires a 15 percent return
on equity investments? - $26.30
A stock currently sells for $30 per share and pays $1.00 per year in dividends. What is an investor's
valuation of this stock if he expects it to be selling for $37 in one year and requires a 12 percent return
on equity investments? - $33.93
In the one-period valuation model, a stock's value will be higher - the higher its expected future price is.
In the one-period valuation model, a stock's value falls if the ________ rises. - required return on equity
