Chapter Nine Test Bank

Chapter Nine

Picking the Equity Players

A 1. The three kinds of dividends firms pay are

a. stock, cash, and property
b. stock, special, and regular
c. cash, special, and regular
d. monthly, quarterly, and year-end

B 2. Securities held on your behalf by a broker are

a. held in a margin account
b. held in a street name
c. registered in your name with the issuing company
d. ineligible for corporate dividends

D 3. Which of the following is an odd lot?

a. 100 shares
b. 500 shares
c. 11,000 shares
d. 11,300 shares

C 4. A spin-off is similar to a
a. stock split
b. stock dividend
c. property dividend
d. cash dividend

A 5. Rights are associated with

a. new stock issues
b. new bond issues
c. any new security issue
d. newly incorporated firms

C 6. The third date in the dividend payment chronology is the

a. date of declaration
b. ex-dividend date
c. date of record
d. date of payment

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B 7. Stock prices tend to fall on the

a. date of declaration
b. ex-dividend date
c. date of record
d. date of payment

B 8. A company's date of record for a dividend is September 15. Which of the

following is most likely to be the ex-dividend date?
a. September 1
b. September 12
c. September 19
d. October 1

A 9. Dividend growth rates are of primary importance to

a. fundamental analysts
b. technical analysts
c. original analysts
d. chartists

B 10. A stock's current dividend is $4.56; ten years ago it was $2.88. What has been
the average annual dividend growth rate?
a. 4.0%
b. 4.7%
c. 5.6%
d. 6.6%

C 11. A stock sells for $28; its current dividend is $1.00, and its dividend growth
rate is 4.4%. What is the shareholder's required rate of return?
a. 6.6%
b. 7.7%
c. 8.1%
d. 8.8%

A 12. The dividend growth rate should be calculated via the _____ mean.
a. geometric
b. arithmetic
c. harmonic
d. standardized

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D 13. To illustrate why dividends do not matter, the text used a _____ example.
a. used car
b. new car
c. paint can
d. shoebox

A 14. Dividend policy is associated with which of the following subfields within
finance?
a. Signaling
b. Optimum capital structure
c. Market anomalies
d. Technical analysis

D 15. A stock split in which shareholders hold fewer shares after the split is a
a. forward split
b. direct split
c. indirect split
d. reverse split

A 16. The primary motivation for a stock split is usually a desire to

a. reduce the stock price
b. reduce the dividend requirement
c. reduce the number of shares outstanding
d. reduce earnings per share

D 17. A 25% stock dividend is equivalent to a

a. 2 for 1 stock split
b. 1 for 2 stock split
c. 4 for 5 stock split
d. 5 for 4 stock split

A 18. Blue chip stocks generally

a. have a long uninterrupted history of dividend payments
b. are not growth stocks
c. have high dividend payout ratios
d. have high price-earnings ratios

D 19. A steel company is probably a _____ stock.

a. blue chip
b. income
c. defensive
d. cyclical

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C 20. A retail food company is a good example of a _____ stock.

a. blue chip
b. income
c. defensive
d. cyclical

D 21. Which of the following pairs of stock categories are mutually exclusive?
a. Income, blue chip
b. Growth, penny
c. Income, defensive
d. Cyclical, defensive

B 22. If a stock symbol contains a period, this means

a. it trades over the counter
b. there is more than one class of stock
c. it is a preferred stock
d. it trades on the American Stock Exchange

D 23. The correct sequence in the dividend payment chronology is the

a. date of record, date of declaration, ex-dividend date, date of payment
b. date of declaration, date of record, ex-dividend date, date of payment
c. date of declaration, date of record, date of payment, ex-dividend date
d. date of declaration, ex-dividend date, date of record, date of payment

C 24. A company just paid a dividend of $2.00 per share. Five years ago, the
company paid a dividend of $1.00 per share. What is the average growth rate in
dividends?
a. 8%
b. 10%
c. 15%
d. 20%

D 25. A company just paid a dividend of $3.00 per share. Four years ago, the
company paid a dividend of $2.00 per share. You expect the dividend payment to
continue growing at this same rate indefinitely into the future. If the required rate
of return on equity is 14% per year, what would be a fair price for this stock
today?
a. 27.09
b. 48.70
c. 90.09
d. 99.65

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B 26. A company plans to pay a dividend of $2.00 next year and expects the
dividend will grow 6% per year indefinitely into the future. If the required rate of
return on equity is 12%, what would be a fair price for this stock today?
a. 27.33
b. 33.33
c. 35.33
d. 43.33

B 27. A company just paid a dividend of $1.50 and expects the dividend will grow
7% per year indefinitely into the future. If the required rate of return on equity is
13%, what would be a fair price for this stock today?
a. 25.00
b. 26.75
c. 30.25
d. 35.75

B 28. A company plans to pay a dividend of $1.40 next year, $1.60 the following
year, and $1.80 three years from now. Thereafter, it is expected that the dividend
will grow 5% per year indefinitely into the future. If the required rate of return is
14%, what would be a fair price for this stock today?
a. 15.39
b. 17.85
c. 21.00
d. 22.80

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