3) High dividend yields are typical of rapidly growing companies.
4) With respect to dividend payments on stocks, the date of record is the date on which the
payment is actually paid.
5) Stock dividends do not increase the value of a shareholder’s position.
6) The value of a stock distribution is considered taxable income at the time of the distribution.
7) The stock listing for a company shows a P/E of 18, a dividend yield of 2.4% and a closing
price of $23.76. What is the amount of dividends per share?
A) $0.03
B) $0.57
C) $1.03
D) $1.32
8) The decision of how much money to pay out in dividends is made by the
A) board of directors.
B) company shareholders.
C) chief executive officer.
D) chief financial officer.
9) Factors considered in making a decision on a firm’s dividend include the
I. cash position of the firm.
II. firm’s growth prospects.
III. the expectations of the shareholders.
IV. restrictive covenants in loan agreements.
A) II and IV only
B) I, II and IV only
C) I, II and III only
D) I, II, III and IV
10) The date on which an investor must be a registered shareholder of the firm in order to receive
a dividend is called the
A) date of record.
B) ex-dividend date.
C) payment date.
D) purchase date.
11) The Limberger Corporation declared a quarterly dividend of $0.10 per share. The ex–
dividend date was July 15, the date of record was July 18, and the payment date was July 28. If
you had owned 100 shares of the Limberger Corporation and sold them on July 15, then
A) you would collect $10.00 in dividends, and the purchaser would not collect any dividends.
B) the purchaser would collect $10.00 in dividends, and you would not collect any dividends.
C) you would collect $5.00 in dividends, and the purchaser would collect $5.00 in dividends.
D) neither you nor the purchaser would collect any money in dividends.
12) The common shares of the Owl Company have a book value of $10.80 and a market value of
$14.30. The company pays $0.14 in dividends each quarter. What is the dividend yield?
A) 1.0%
B) 1.3%
C) 3.9%
D) 5.2%
13) Since 2003, most dividends are taxed
A) at a higher rate than capital gains.
B) at a lower rate than capital gains.
C) at the same rate as ordinary income.
D) at the same rate as capital gains.
14) Over the last 10 years, what percentage of the total return on typical stocks in the Dow Jones
average has come from dividends?
A) 0% to 1.0%
B) 2% to 4%
C) 8% to 10%
D) More than 10%
15) Dividend yield is calculated by dividing
A) the market price of one share of stock by the annual dividend per share.
B) the annual dividend per share by the market price of one share of stock.
C) earnings per share by market price per share.
D) annual dividend per share by earnings per share.
16) If a corporation declares a 10% stock dividend, then
A) the share price of the stock will most likely decline by about 9%.
B) the share price of the stock will most likely increase by about 10%.
C) the share price of the stock will most likely remain unchanged.
D) each shareholder will get a 10% cash rebate off his or her next round lot purchase of the
stock.
17) Gypsum Corp. pays out 25% of its earnings as dividends. Earnings per share are currently
$1.32, book value per share is $16.80, and the market price per share is $22.44. What is the
dividend yield?
A) 1.5%
B) 2.0%
C) 5.9%
D) 7.9%
18) To take advantage of the opportunity to acquire additional shares of a company’s stock
without incurring any brokerage commissions, many investors participate in
A) initial public offerings.
B) dividend reinvestment plans.
C) deferred equity securities.
D) corporate trusts.
19) Reinvested dividends
A) are taxed when the shares purchased with the reinvested dividend are sold.
B) are taxed at the time the dividend is paid.
C) do not increase the value of an investor’s holdings.
D) are generally sold at a premium over the market price.
1) Stocks which perform well in a faltering economy are called defensive stocks.
2) Mid-cap stocks are generally classified as those with a market capitalization between $1 and
$5 billion.
3) “Baby blues” is a term used to refer to telecom stocks.
17
Copyright © 2011 Pearson Education, Inc.
4) American Depositary Receipts (ADRs) are issued against shares of U.S. corporations and are
traded on foreign security exchanges.
5) The rate of return on a foreign investment is affected by changes in the exchange rates.
6) An increase in the value of the dollar relative to the yen has a positive effect on the returns of
U.S. investors who invest in stocks of Japanese firms.
7) An increase in the dollar relative to the euro has a negative effect on the returns of U.S.
investors who invest in European firms.
8) The most common reason for an investor to adopt the quality long-term growth investment
strategy is for long-term accumulation of capital.
9) The total-return approach concentrates solely on capital gains over the long-term.
10) Which one of the following is a characteristic of blue chip stocks?
A) guaranteed minimum annual dividend of $2 a share
B) annual dividends of more than $5 per share
C) long and stable dividend and earnings records
D) relatively high risk exposure
11) Investors seeking current income that tends to increase over time should purchase
A) cyclical stocks.
B) income stocks.
C) growth stocks.
D) speculative stocks.
12) Companies with strong earnings but limited growth opportunities
A) do not generally pay any dividends.
B) are called blue-chip stocks.
C) generally pay high dividends.
D) are speculative stocks.
13) Characteristics of established growth companies include all of the following EXCEPT
A) high operating margins.
B) steady earnings growth.
C) adequate cash flow to service their debt.
D) high dividend payout ratios.
14) Stocks whose prices are expected to remain stable, or even prosper, when economic activity
is slowing down are known as
A) defensive stocks.
B) cyclical stocks.
C) reversible stocks.
D) speculative stocks.
15) Which of the following are characteristics of small cap stocks?
I. strong balance sheets
II. annual revenues less than $250 million
III. potential for high returns along with high risk
IV. potentially dramatic changes in their earnings
A) III and IV only
B) II and III only
C) I, III and IV only
D) II, III and IV only
16) Which of the following are characteristics of blue-chip stocks?
I. solid balance sheets
II. generous dividend yields
III. immunity from bear markets
IV. some growth potential
A) III and IV only
B) II and III only
C) I, II and IV only
D) II, III and IV only
17) Stocks related to computers and the Internet are classified as
A) blue-chip stocks.
B) income stocks.
C) cyclical stocks.
D) tech stocks.
18) Typical characteristics of growth stocks include
A) rapidly growing dividends.
B) high rates of growth in operations and earnings.
C) acquisitions of competing companies.
D) strong performance even in market downturns.
19) A&B Research Corp. specializes in the development of new products. These products
oftentimes are complete failures in the marketplace. However, if a product is successful, it is
normally a phenomenal success. The stock of A&B Research is classified as a
A) speculative stock.
B) cyclical stock.
C) defensive stock.
D) income stock.
20) One characteristic of mid-cap stocks is that they
A) are generally new firms with high growth potential.
B) tend to be highly volatile.
C) are fairly good-sized companies that offer attractive return opportunities.
D) are traded primarily through pink sheet bids.
21) Which category of stocks represents the highest level of risk?
A) large-cap
B) mid-cap
C) baby blue
D) small-cap
22) The U.S. stock market
A) currently represents about 66% of the world’s equity market.
B) consistently outperforms the foreign markets once exchange rates are considered.
C) is decreasing as a percentage of the world’s equity market.
D) lists over 25,000 stocks.
23) Which of the following factors should be considered when investing in foreign stocks?
I. exchange rates
II. differing accounting standards
III. tax systems
IV. ADRs
A) I and II only
B) I and III only
C) I, II and III only
D) I, II, III and IV
24) ADRs
A) represent ownership in unlisted domestic stocks.
B) pay dividends in U.S. dollars.
C) receive company dividends only in U.S. dollars.
D) are subject to taxation only by the U.S. government.
25) Amanda purchased stock in a German firm at a price per share of 35 euros when the US
$/euro exchange rate was $1.40. After six months, Ann sold the stock for 37 euros when the US
$/euro exchange rate was $1.45. The stock does not pay a dividend. What is Ann’s rate of return
on this investment?
A) -9.5%
B) -5.4%
C) 5.7%
D) 9.5%
26) Aggressive stock management
A) is the riskiest of all the investment strategies.
B) involves active stock trading in the short-term in the quest for capital gains.
C) concentrates on the long-term growth aspects of a security.
D) concentrates on high dividend yielding stocks.
27) Which one of the following investment strategies would NOT appeal to an investor who is
most concerned with storage of value?
A) buy-and-hold
B) high income
C) quality long-term growth
D) speculation and short-term trading
28) The common stock investment strategy that is the most basic strategy and is popular with
conservative, quality-conscious individuals looking for competitive returns over the long run is
the
A) buy-and-hold strategy.
B) current income strategy.
C) growth strategy.
D) speculation and short-term trading strategy.
29) Investors who are willing to trade in and out of stocks seeking quick profits would be
particularly interested in
A) blue chip stocks.
B) growth stocks.
C) cyclical stocks.
D) income stocks.
30) Which of the following strategies appeal to investors who place primary emphasis on the
storage of value aspects of an investment?
I. buy and hold
II. short-term trading
III. quality long-term growth
IV. consistent dividend record
A) I and IV only
B) I and III only
C) I, II and III only
D) I, III and IV only
31) Which strategy applies to investors who fund long-term goals with high-quality stocks which
they retain for the entire investment period?
A) quality long-term growth
B) buy and hold
C) speculation
D) current income
32) Income stocks are well suited for retirees because
A) dividend income is tax-free.
B) the capital gains are predictable.
C) dividend yields tend to exceed bond yields.
D) dividends tend to increase over time.
33) Explain why every stock portfolio should include some defensive stocks.