Chapter 06 - Stock Valuation Chapter 06 Stock Valuation Multiple Choice Questions 1. An asset characterized by cash flows that increase at a constant rate forever is called a: A. preferred stock. B. growing annuity. C. common annuity. D. perpetuity due. E. growing perpetuity. 2. The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model. A. zero growth B. dividend growth C. capital pricing D. earnings capitalization E. differential growth 3. Next year's annual dividend divided by the current stock price is called the: A. yield to maturity. B. total yield. C. dividend yield. D. capital gains yield. E. earnings yield. 4. The rate at which a stock's price is expected to appreciate (or depreciate) is called the _____ yield. A. current B. total C. dividend D. capital gains E. earnings 6-1
Chapter 06 - Stock Valuation 5. A form of equity which receives preferential treatment in the payment of dividends is called _____ stock. A. preferred B. cumulative C. common D. dual class E. deferred 6. A _____ is a form of equity security that has a stated liquidating value. A. debenture B. bond C. preferred stock D. common stock E. proxy 7. A form of equity which receives no preferential treatment in either the payment of dividends or in bankruptcy distributions is called _____ stock. A. preferred B. common C. deferred D. dual class E. cumulative 8. The voting procedure whereby shareholders may cast all of their votes for one member of the board is called _____ voting. A. democratic B. cumulative C. straight D. deferred E. proxy 6-2
Chapter 06 - Stock Valuation 9. The voting procedure where you must own 50% plus one of the outstanding shares of stock to guarantee that you will win a seat on the board of directors is called _____ voting. A. proxy B. cumulative C. deferred D. straight E. democratic 10. The voting procedure where a shareholder grants authority to another individual to vote his/her shares is called _____ voting. A. proxy B. deferred C. straight D. cumulative E. democratic 11. Preemptive rights refer to the right of shareholders to: A. share proportionately in dividends paid. B. override the votes of other shareholders. C. vote at annual shareholder meetings. D. share proportionately in liquidated assets. E. share proportionately in any new stock issues sold. 12. Payments made by a corporation to its shareholders, in the form of either cash, stock or payments in kind, are called: A. retained earnings. B. net income. C. dividends. D. redistributions. E. infused equity. 6-3
Chapter 06 - Stock Valuation 13. The market in which new securities are originally sold to investors is called the _____ market. A. dealer
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