1. Which of the following statements is true about secondary markets? A) In seco
ID: 2729920 • Letter: 1
Question
1. Which of the following statements is true about secondary markets? A) In secondary markets, outstanding shares of stock are bought and sold among investors. B) Most secondary market transactions directly affect the capital of the firm that issues the securities. C) An active secondary market causes firms to sell their new debt or equity issues at a higher transaction cost of funds. D) All of the above statements are true 2. The least efficient of all the different types of secondary markets is the: A) auction market. B) direct search market. C) dealer market. D) broker market. 3. Which of the following statements is NOT true about common stock? A) Common-stock holders have the right to vote on the election of the board of directors of their company. B) Common stock is considered to have no fixed maturity. C) Owners of common stock are guaranteed dividend payments by the firm. D) Common-stock holders have limited liability toward the obligations of the corporation. 4. Which of the following statements is NOT true about preferred stock? A) Preferred stock represents ownership in the firm. B) Preferred stockholders are not eligible for guaranteed dividend payments by the firm. C) Preferred stock dividends are paid by the issuer with after-tax dollars. D) Preferred stock holders have limited voting privileges relative to common-stock owners. 5. Preferred stock is sometimes treated like a debt security because: A) legally preferred stock is a debt security. B) preferred dividend payments are similar to bond interest payments and are fixed in nature regardless of the firm’s earnings. C) preferred dividends are deductible from taxable income just like interest payments on bonds. D) preferred stock holders receive a residual value and not a stated value. 6. Assume that you are considering the purchase of a stock which will pay dividends of $4.50 during the next year. Further assume that you will be able to sell the stock for $85.00 one year from today and that your required rate of return is 15 percent. How much would you be willing to pay for the stock today? (Round off to the nearest $0.01) A) $89.50 B) $65.37 C) $94.10 D) $77.83 7. Which of the following statements is NOT true about constant-growth stocks? A) Cash dividend remains constant over time. B) Mature companies with a history of stable growth show this pattern. C) Dividends grow at a constant rate from one period to the next forever. D) Far distant-dividends have a very small present value and add little to the stock’s price. 8. Jacob Suppliers has not paid out any dividend in the last three years. It does not expect to pay dividends in the next two years either as it recovers from an economic slowdown. Three years from now it expects to pay a dividend of $2.50 and then $3.00 in the following two years. What is the present value of the dividends to be received over the next five years if the discount rate is 15 percent?( Do not round intermediate calculations. Round final answer to two decimal places.) A) $4.85 B) $5.37 C) $5.50 D) $6.14 9. Zephyr Electricals is a company with no growth potential. Its last dividend payment was $4.50, and it expects no change in future dividends. What is the current price of the company’s stock given a discount rate of 9 percent? A) $40.50 B) $50.00 C) $45.00 D) $500.00 10. Johnson Corporation has just paid a dividend of $4.45. The company has forecasted a growth rate of 8 percent for the next several years. If the appropriate discount rate is 14 percent, what is the current price of this stock? (Round to the nearest dollar.) A) $74 B) $32 C) $80 D) $60 11. Prior, Inc., is expected to grow at a constant rate of 9 percent. If the company’s next dividend is $2.75 and its current price is $37.35, what is the required rate of return on this stock? (Do not round intermediate calculations. Round final answer to the nearest percent.) A) 13% B) 16% C) 20% D) 21% 12. A company is growing at a constant rate of 8 percent. Last week it paid a dividend of $3.00. If the required rate of return is 15 percent, what is the price of the stock three years from now? (Do not round intermediate calculations. Round final answer to two decimal places.) A) $58.31 B) $46.29 C) $51.02 D) $42.83 13. BioSci, Inc., a biotech firm has forecast the following growth rates for the next three years: 30 percent, 25 percent, and 20 percent. The company then expects to grow at a constant rate of 7 percent for the next several years. The company paid a dividend of $2.00 last week. If the required rate of return is 16 percent, what is the market value of this stock? (Do not round intermediate calculations. Round final answer to two decimal places.) A) $51.03 B) $36.86 C) $56.12 D) $46.37 14. Which of the following statements about preferred stock is FALSE? A) Preferred stock has a higher-priority claim on the firm’s assets than the common stock. B) Failure to pay dividends on preferred stocks will result in a default. C) Preferred stock has a lower-priority claim on the firm’s assets than the firm’s creditors in the event of default. D) Preferred stock typically pays a fixed dividend.
Explanation / Answer
Answer1.
Secondary market
It is also called as the aftermarket as in this the stocks, the bonds as well as the options and futures that are previously traded are bought and sold.
Some of the examples of the secondary market are NASDAQ and the New York Stock Exchange.
Hence out of the given statements the statement “In secondary markets, outstanding shares of stock are bought and sold among investors”. Is correct. This is because as per the definition of secondary market tin the secondary market the shares are bought and sold among investors.
Therefore, the correct statement is A.
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