Evaluation of stocks

Chapter 08

Valuing Stocks

BA 540 Chapter 08 – Valuing Stocks

BA540 Chapter 08 – Valuing Stocks

BA-540 Chapter 08 – Valuing Stocks

BA 540 Chapter08 – Valuing Stocks

Multiple Choice Questions
1. These investors earn returns from receiving dividends and from stock price appreciation.
A. bondholders
B. stockholders
C. investment bankers
D. managers

 

2. As residual claimants, these investors claim any cash flows to the firm that remain after the firm pays all other claims.
A. creditors
B. bondholders
C. preferred stockholders
D. common stockholders

 

3. When residual cash flows are high, stock values will be
A. unchanged.
B. low.
C. high.
D. unpredictable.

 

4. Trading at physical exchanges like the New York Stock Exchange and the American Stock Exchange takes place
A. at dealers’ trading posts.
B. at brokers’ trading posts.
C. at dealers’ computers.
D. at market markers.

 

5. The Dow Jones Industrial Average (DJIA) includes
A. all of the stock listed on the New York Stock Exchange.
B. 30 of the largest (market capitalization) and most active companies in the U.S. economy.
C. 500 firms that are the largest in their respective economic sectors.
D. 500 firms that are the largest as ranked by Fortune Magazine.

 

6. The Standard & Poor’s 500 Index includes
A. all of the stock listed on the New York Stock Exchange.
B. 30 of the largest (market capitalization) and most active companies in the U.S. economy.
C. 500 firms that are the largest in their respective economic sectors.
D. 500 firms that are the largest as ranked by Fortune Magazine.

 

7. The NASDAQ Composite includes
A. all of the stocks listed on the NASDAQ Stock Exchange.
B. 30 of the largest (market capitalization) and most active companies in the U.S. economy.
C. 500 firms that are the largest in their respective economic sectors.
D. 500 firms that are the largest as ranked by Fortune Magazine.

 

8. This will only be executed if the order’s price conditions are met.
A. a trade
B. a limit order
C. an unlimited order
D. a spread

 

9. Investors buy stock at the
A. dealer price.
B. bid price.
C. quoted ask price.
D. broker price.

 

10. Investors sell stock at the
A. dealer price.
B. bid price.
C. quoted ask price.
D. broker price.

 

11. These are valued as a special zero-growth case of the constant growth rate model.
A. common stock
B. preferred stock
C. future dividends
D. future stock prices

 

12. Stock valuation model dynamics make clear that lower discount rates lead to
A. lower valuations.
B. higher valuations.
C. lower growth rates.
D. higher growth rates.

 

13. Stock valuation model dynamics make clear that higher growth rates lead to
A. lower valuations.
B. higher valuations.
C. lower growth rates continuing.
D. higher growth rates continuing.

 

14. We can estimate a stock’s value by
A. using the book value of the total stockholder equity section.
B. discounting the future dividends and future stock price appreciation.
C. compounding the past dividends and past stock price appreciation.
D. using the book value of the total assets divided by the number of shares outstanding.

 

15. Many companies grow very fast at first, but slower future growth can be expected. Such companies are called
A. Fortune 500 companies
B. Blue Chip companies
C. Variable Growth Rate firms
D. Constant Growth Rate firms

 

16. We often use the P/E ratio model with the firm’s growth rate to estimate
A. required rates of return.
B. inflation.
C. a stock’s current price.
D. a stock’s future price.

 

17. Value stocks usually have
A. low P/E ratios and high growth rates.
B. high P/E ratios and low growth rates.
C. low P/E ratios and low growth rates.
D. high P/E ratios and high growth rates.

 

18. Dividend yield is defined as
A. the last four quarters of dividend income expressed as a percentage of the par value of the stock.
B. the last four quarters of dividend income expressed as a percentage of the current stock price.
C. the last dividend paid expressed as a percentage of the current stock price.
D. the next dividend to be paid expressed as a percentage of the current stock price.

 

19. The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm’s
A. market capitalization.
B. book value.
C. market makers.
D. constant growth model.

 

20. Stock Index Performance On November 26, 2007, The Dow Jones Industrial Average closed at 12,743.40, which was down 237.44 that day. What was the return (in percent) of the stock market that day?
A. -.02%
B. +.02%
C. -1.83
D. +1.83%

 

21. Stock Index Performance On November 27, 2007, The Dow Jones Industrial Average closed at 12,958.44, which was up 215.04 that day. What was the return (in percent) of the stock market that day?
A. -.017%
B. +.017%
C. -1.69%
D. +1.69

 

22. Buying Stock with Commission At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 100 shares of Ralph Lauren (RL), which trades at $85.13?
A. $8,503.05
B. $8,503.00
C. $8,522.95
D. $9,508.00

 

23. Buying Stock with Commission At your discount brokerage firm, it costs $8.50 per stock trade. How much money do you need to buy 200 shares of Apple (AAPL), which trades at $171.54?
A. $32,608.00
B. $34,299.50
C. $34,316.50
D. $36,008.00