FNE311FinancialMarketsandInstitutions

QUIZ2

1.Thedistributionofafirmscapitalbetweendebtandequityisits
(a) leverageratio.
(b) liabilitystructure
(c) acidratio.
(d) capitalstructure.
2.

Thelargestpurchasersofcapitalmarketsecuritiesare
(a) households.
(b) corporations
(c) governments.
(d) centralbanks.

3.The_________valueofabondistheamountthattheissuermustpayatmaturity.
(a) market
(b) present
(c) discounted
(d) face
4.(I)Mostcorporatebondshaveafacevalueof$1000,payinterestsemiannually,andcanberedeemed
anytimetheissuerwishes.(II)Registeredbondshavenowbeenlargelyreplacedbybearerbonds,
whichdonothavecoupons.
(a) (I)istrue,(II)false.

(b) (I)isfalse,(II)true.
(c) Botharetrue.
(d) Botharefalse.
5.Arequirementinthebondindenturethatthefirmpayoffaportionofthebondissueeachyear
iscalled
(a) asinkingfund.
(b) acallprovision.
(c) arestrictivecovenant.
(d) ashelfregistration.
6.

Thecurrentyieldisalessaccurateapproximationoftheyieldtomaturitythe_________thetime
tomaturityofthebondandthe_________thepriceisfrom/totheparvalue.
(a) shorter;closer
(b) shorter;farther
(c) longer;closer
(d) longer;farther

7.

Thecurrentyieldona$6,000,10percentcouponbondsellingfor$5,000is
(a) 5percent.
(b) 10percent.
(c) 12percent.
(d) 15percent.

8.Theyieldonadiscountbasisofa180day$1,000Treasurybillsellingfor$900is
(a) 10percent.

(b) 20percent.
(c) 25percent.
(d) 40percent.
9.TolistontheNYSE,afirmmust
(a) haveearningsofatleast$100millionforeachofthelastthreeyears.
(b) haveatleast$500millionofmarketvalueand$100millionofrevenue.
(c) haveatotalof$100millioninmarketvalueofpubliclytradedshares.
(d) meetalloftheaboverequirements.
(e) meet(a)and(b)oftheaboverequirements.
10.WhichofthefollowingisnotanadvantageofElectronicCommunicationsNetworks(ECNs)?
(a) AllunfilledordersareavailableforreviewbyECNtraders.
(b) TransactionscostsarelowerforECNtrades.
(c) Tradesaremadeandconfirmedfaster.
(d) ECNsworkwellforthinlytradedstocks.
11.Astockcurrentlysellsfor$30pershareandpays$1.00peryearindividends.Whatisaninvestors
valuationofthisstockifheexpectsittobesellingfor$37inoneyearandrequires12percent
returnonequityinvestments?
(a) $38
(b) $33.50
(c) $34.50
(d) $33.93
12.AccordingtotheGordongrowthmodel,whatisaninvestorsvaluationofastockwhosecurrent
dividendis$1.00peryearifdividendsareexpectedtogrowataconstantrateof10percentovera
longperiodoftimeandtheinvestorsrequiredreturnis11percent?
(a) $110

(b)
(c)
(d)
(e)

$100
$11
$10
$5.24

13.SupposetheaverageindustryPEratioforautopartsretailersis20.WhatisthecurrentpriceofAuto
Zonestockiftheretailersearningspershareareprojectedtobe$1.85?
(a) $21.85
(b) $37
(c) $10.81
(d) $9.25
14.

WhichofthefollowingistrueregardingtheGordongrowthmodel?
(a) Dividendsareassumedtogrowataconstantrateforever.
(b) Thedividendgrowthrateisassumedtobegreaterthantherequiredreturnonequity.
(c) Both(a)and(b).
(d) Neither(a)nor(b).

15.

ThePEratioapproachtovaluingstockisespeciallyusefulforvaluing
(a) privatelyheldfirms.
(b) firmsthatdontpaydividends.
(c) both(a)and(b).
(d) neither(a)nor(b).

16.Themaincauseoffluctuationsinstockpricesischangesin

(a)
(b)
(c)
(d)
(e)
17.

taxlaws.
errorsintechnicalstockanalysis.
dailytradingvolumeinstockmarkets.
informationavailabletoinvestors.
totalhouseholdwealthintheeconomy.

Stockvaluescomputedbyvaluationmodelsmaydifferfromactualmarketpricesbecauseitis
difficultto
(a) estimatefuturedividendgrowthrates.
(b) estimatetheriskofastock.
(c) forecastastocksfuturedividends.
(d) alloftheabovearetrue.

18.WhichofthefollowingisnotanobjectiveoftheSecuritiesandExchangeCommission?
(a) maintainintegrityofthesecuritiesmarkets
(b) adviseinvestorsaboutwhichparticularstocksaregoodbuys
(c) requirefirmstoprovidespecificinformationtoinvestors
(d) regulatemajorparticipantsinsecuritiesmarkets
19.Afirmisexpectedtopayadividendof$1.00nextyearandthedividendisexpectedtogrowata
constantrateof4percentovertime.Someinvestorshaverequiredreturnsoninvestmentsinequity
of12percent,some10percent,andsome8percent.Themarketpriceofthisfirmsstockwillbe?

20.Howdooverthecountermarketsdifferfromorganizedexchanges?