money-and-bank-test-bank-chap07

1TheEconomicsofMoney,Banking,andFinancialMarkets,9e(Mishkin)Chapter7TheStockMarket,theTheoryofRationalExpectations,andtheEfficientMarketHypothesis7.1ComputingthePriceofCommonStock1)Astockholder'sownershipofacompany'sstockgiveshertherighttoA)voteandbetheprimaryclaimantofallcashflows.B)voteandbetheresidualclaimantofallcashflows.C)manageandassumeresponsibilityforallliabilities.D)voteandassumeresponsibilityforallliabilities.Answer:BQuesStatus:PreviousEdition2)Stockholdersareresidualclaimants,meaningthattheyA)havethefirstpriorityclaimonallofacompany'sassets.B)areliableforallofacompany'sdebts.C)willnevershareinacompany'sprofits.D)receivetheremainingcashflowafterallotherclaimsarepaid.Answer:DQuesStatus:PreviousEdition3)PeriodicpaymentsofnetearningstoshareholdersareknownasA)capitalgains.B)dividends.C)profits.D)interest.Answer:BQuesStatus:PreviousEdition4)ThevalueofanyinvestmentisfoundbycomputingtheA)presentvalueofallfuturesales.B)presentvalueofallfutureliabilities.C)futurevalueofallfutureexpenses.D)presentvalueofallfuturecashflows.Answer:DQuesStatus:PreviousEdition5)Intheone-periodvaluationmodel,thevalueofashareofstocktodaydependsuponA)thepresentvalueofbothdividendsandtheexpectedsalesprice.B)onlythepresentvalueofthefuturedividends.C)theactualvalueofthedividendsandexpectedsalespricereceivedinoneyear.D)thefuturevalueofdividendsandtheactualsalesprice.Answer:AQuesStatus:Revised26)Intheone-periodvaluationmodel,thecurrentstockpriceincreasesifA)theexpectedsalespriceincreases.B)theexpectedsalespricefalls.C)therequiredreturnincreases.D)dividendsarecut.Answer:AQuesStatus:PreviousEdition7)Intheone-periodvaluationmodel,anincreaseintherequiredreturnoninvestmentsinequityA)increasestheexpectedsalespriceofastock.B)increasesthecurrentpriceofastock.C)reducestheexpectedsalespriceofastock.D)reducesthecurrentpriceofastock.Answer:DQuesStatus:Revised8)Usingtheone-periodvaluationmodel,assumingayear-enddividendof$0.11,anexpectedsalespriceof$110,andarequiredrateofreturnof10%,thecurrentpriceofthestockwouldbeA)$110.11.B)$121.12.C)$100.10.D)$100.11Answer:CQuesStatus:PreviousEdition9)Usingtheone-periodvaluationmodel,assumingayear-enddividendof$1.00,anexpectedsalespriceof$100,andarequiredrateofreturnof5%,thecurrentpriceofthestockwouldbeA)$110.00.B)$101.00.C)$100.00.D)$96.19.Answer:DQuesStatus:PreviousEdition10)Inthegeneralizeddividendmodel,iftheexpectedsalespriceisinthedistantfutureA)itdoesnotaffectthecurrentstockprice.B)itismoreimportantthandividendsindeterminingthecurrentstockprice.C)itisequallyimportantwithdividendsindeterminingthecurrentstockprice.D)itislessimportantthandividendsbutstillaffectsthecurrentstockprice.Answer:AQuesStatus:Revised311)Inthegeneralizeddividendmodel,afuturesalespricefarinthefuturedoesnotaffectthecurrentstockpricebecauseA)thepresentvaluecannotbecomputed.B)thepresentvalueisalmostzero.C)thesalespricedoesnotaffectthecurrentprice.D)thestockmayneverbesold.Answer:BQuesStatus:PreviousEdition12)Inthegeneralizeddividendmodel,thecurrentstockpriceisthesumofA)theactualvalueofthefuturedividendstream.B)thepresentvalueofthefuturedividendstream.C)thepresentvalueofthefuturedividendstreamplustheactualfuturesalesprice.D)thepresentvalueofthefuturesalesprice.Answer:BQuesStatus:PreviousEdition13)UsingtheGordongrowthmodel,astock'spricewillincreaseifA)thedividendgrowthrateincreases.B)thegrowthrateofdividendsfalls.C)therequiredrateofreturnonequityrises.D)theexpectedsalespricerises.Answer:AQuesStatus:Revised14)IntheGordongrowthmodel,adecreaseintherequiredrateofreturnonequityA)increasesthecurrentstockprice.B)increasesthefuturestockprice.C)reducesthefuturestockprice.D)reducesthecurrentstockprice.Answer:AQuesStatus:Revised15)UsingtheGordongrowthformula,ifD1is$2.00,keis12%or0.12,andgis10%or0.10,thenthecurrentstockpriceisA)$20.B)$50.C)$100.D)$150.Answer:CQuesStatus:PreviousEdition416)UsingtheGordongrowthformula,ifD1is$1.00,keis10%or0.10,andgis5%or0.05,thenthecurrentstockpriceisA)$10.B)$20.C)$30.D)$40.Answer:BQuesStatus:PreviousEdition17)OneoftheassumptionsoftheGordonGrowthModelisthatdividendswillcontinuegrowingat________rate.A)anincreasingB)afastC)aconstantD)anescalatingAnswer:CQuesStatus:PreviousEdition18)IntheGordonGrowthModel,thegrowthrateisassumedtobe________therequiredreturnonequity.A)greaterthanB)equaltoC)lessthanD)proportionaltoAnswer:CQuesStatus:PreviousEdition19)Youbelievethatacorporation'sdividendswillgrow5%onaverageintotheforeseeablefuture.Ifthecompany'slastdividendpaymentwas$5whatshouldbethecurrentpriceofthestockassuminga12%requiredreturn?Answer:UsetheGordonGrowthModel.$5(1+.05)/(.12-.05)=$75QuesStatus:PreviousEdition20)Whatrightsdoesownershipinterestgivestockholders?Answer:Stockholdershavetherighttovoteonissuesbroughtbeforethestockholders,betheresidualclaimant,thatis,receiveaportionofanynetearningsofthecorporation,andtherighttosellthestock.QuesStatus:PreviousEdition57.2HowtheMarketSetsStockPrices1)Inassetmarkets,anasset'spriceisA)setequaltothehighestpriceasellerwillaccept.B)setequaltothehighestpriceabuyeriswillingtopay.C)setequaltothelo