Module 3 Facts

Southwestern University **We aren't endorsed by this school
Oct 14, 2023
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1. The New York Stock Exchange is the only stock market in the U.S. a. False 2. Most of the trading on the NYSE is in ordinary common stocks a. True 3. The constant growth formula for stock valuation does not work for a firm with a negative growth rate (i.e., a declining growth rate) in its dividend. a. False 4. The only payoff to the owners of common stocks is in the form of cash dividends. a. False 5. The cost of equity capital equals the dividend yield minus the growth rate in dividends for a constant dividend growth stock. a. False 6. The following are auction markets EXCEPT: a. New York Stock Exchange b. Tokyo Stock Exchange c. London Stock Exchange d. Nasdaq 7. The major secondary market for GE shares is: a. New York Stock Exchange 8. The following is an example of a dealer market: a. Nasdaq 9. In which of the following stock exchanges are there specialists who act as auctioneers? a. New York Stock Exchange 10. The constant dividend growth formula P0 = Div1/(r - g) assumes: a. that dividends grow at a constant rate g, forever b. r > g c. g is never negative d. I and II only 11. The return that is expected by investors from a common stock is also called its market capitalization rate, or cost of equity capital. a. True 12. A large percentage of the total value of a growth stock comes from the present value of its growth opportunities. a. True 13. The dividend yield reported on is calculated as follows: a. (Dividend/closing stock price) 14. The valuation of a common stock today primarily depends on: a. Its expected future dividends and discount rate 15. One can estimate the dividend growth rate for a stable firm as: a. Plow-back rate * the return on equity ROE 16. A stock's price is based on the expected present value, at the market capitalization rate, of all the stock's future earnings.
a. False 17. One can use the discounted cash-flow formulas that are used to value common stocks in order to value entire businesses. a. True 18. It is not possible to value a firm that has a supernormal (variable) growth rate for the first few years of its life. a. False 19. In which of the following exchanges does a computer act as the auctioneer? I. New York Stock Exchange II. London Stock Exchange III. Tokyo Stock Exchange IV. Frankfurt Stock Exchange 20. The growth rate in dividends is a function of two ratios. They are: a. ROE and the plowback ratio 21. Generally high growth stocks pay: a. Low or no dividends
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