28) The cumulative dividend feature is necessary to protect the rights of preferred stockholders.
Topic: 10.3 Preferred Stock
Keywords: market required yield
Principles: Principle 3: Cash Flows Are the Source of Value
29) Preferred stock cannot be retired.
Topic: 10.3 Preferred Stock
Keywords: market required yield
Principles: Principle 3: Cash Flows Are the Source of Value
30) In order to determine the value of a share of preferred stock, the discount rate used is the
annual dividend percent.
Topic: 10.3 Preferred Stock
Keywords: market required yield
Principles: Principle 3: Cash Flows Are the Source of Value
31) It is quite common for firms that issue preferred stock to issue more than one series.
Topic: 10.3 Preferred Stock
Keywords: market required yield
Principles: Principle 3: Cash Flows Are the Source of Value
32) Miller/Hershey’s preferred stock is selling at $54 on the market and pays an annual dividend
of $4.20 per share.
a. What is the expected rate of return on the stock?
b. If an investor’s required rate of return is 9%, what is the value of the stock for that investor?
c. Considering the investor’s required rate of return, does this stock seem to be a desirable
investment?
Topic: 10.3 Preferred Stock
Keywords: market required yield
Principles: Principle 3: Cash Flows Are the Source of Value
27
33) Discuss two reasons why preferred stock would be viewed as less risky than common stock
to investors.
Topic: 10.3 Preferred Stock
Keywords: market required yield
Principles: Principle 3: Cash Flows Are the Source of Value
34) Determine the rate of return on a preferred stock that costs $50 and pays a $6 per share
dividend.
Topic: 10.3 Preferred Stock
Keywords: market required yield
Principles: Principle 3: Cash Flows Are the Source of Value
1) An example of a primary market transaction is:
A) a new issue of stock by Evergreen Solar.
B) a purchase of Microsoft stock on Nasdaq.
C) Target repurchasing some its own stock from an investor.
D) a sale of IBM stock on the NYSE.
Topic: 10.4 The Stock Market
Keywords: primary market
Principles: Principle 4: Market Prices Reflect Information
2) The largest market for bond trading is:
A) NYSE.
B) Nasdaq.
C) AMEX.
D) the CBOT.
Topic: 10.4 The Stock Market
Keywords: Nasdaq
28
Topic: 10.4 The Stock Market
Keywords: NYSE
Principles: Principle 4: Market Prices Reflect Information
4) Which of the following exchanges has the strictest listing requirements?
A) AMEX
B) Nasdaq
C) NYSE
D) OTC
Topic: 10.4 The Stock Market
Keywords: NYSE
Principles: Principle 4: Market Prices Reflect Information
5) A small, newly listed technology company is most likely to be listed on:
A) AMEX.
B) NYSE.
C) Nasdaq National Markets.
D) Nasdaq Capital Markets.
Topic: 10.4 The Stock Market
Keywords: Nasdaq
Principles: Principle 4: Market Prices Reflect Information
6) Listing requirements for the New York Stock Exchange include:
A) profitability.
B) market value.
C) breadth of ownership.
D) all of the above.
Topic: 10.4 The Stock Market
Keywords: NYSE
Principles: Principle 4: Market Prices Reflect Information
29
7) A block trade is a trade involving 10,000 or more shares by a single holder.
Topic: 10.4 The Stock Market
Keywords: block trade
Principles: Principle 4: Market Prices Reflect Information
8) The AMEX specializes in relatively small, new technology companies.
Topic: 10.4 The Stock Market
Keywords: AMEX
Principles: Principle 4: Market Prices Reflect Information
9) Large, established technology companies such as Apple, Dell, Intel and Microsoft all trade on
the NYSE.
Topic: 10.4 The Stock Market
Keywords: Nasdaq
Principles: Principle 4: Market Prices Reflect Information
10) Trading on the Nasdaq is done electronically and does not require a physical location.
Topic: 10.4 The Stock Market
Keywords: Nasdaq
Principles: Principle 4: Market Prices Reflect Information
11) In addition to stocks in individual companies, the AMEX conducts trading in such securities
as ETFs and options.
Topic: 10.4 The Stock Market
Keywords: AMEX
Principles: Principle 4: Market Prices Reflect Information
30
12) Describe the major differences between the organized exchanges such as the NYSE and
electronic networks such as Nasdaq.
Topic: 10.4 The Stock Market
Keywords: organized exchange
Principles: Principle 4: Market Prices Reflect Information
13) Distinguish between primary stock market transactions and secondary stock market
transaction.
Topic: 10.4 The Stock Market
Keywords: primary market
Principles: Principle 4: Market Prices Reflect Information
31