Unit 6 – Quiz

Stock markets in which already issued stocks are resold and re-bought are classified as

As far as their value is concerned, the top priority group in company should be

Preferred stock is considered as hybrid security because it includes

Markets in which derivatives are traded, are classified as

Which of the following is not a true statement about the goal of maximizing shareholder wealth?

The efficient market hypothesis is based on which of the following assumptions?

Although derivatives can be used as speculative instruments, businesses most often use them to

Financial intermediaries differ from other businesses in that both their assets and their liabilities are mostly

The ______ is defined as the present value of all cash proceeds to the investor in the stock.

The net value of GDP after deducting depreciation from GDP is

The average income of the country is

If a market is inefficient, as new information is received about a security

Business strategy focuses on

Which of the following is not an element of Porter’s 5 Forces Model?

What is likely to happen if many new businesses enter a market?

In Product Life Cycle, Increased competition leads to price decrease, increasing public awareness, sales volume increase significantly are the characteristics of

A depreciation of the U.S. dollar relative to foreign currencies will make

In order to have a smoothed rate of growth, we use

The difference between total current assets and total current liabilities is

In relation to a Company, investors are least concerned with

Which of the following is true about the current ratio?

In the dividend discount model, which of the following are not incorporated into the discount rate?

Other things being equal, a low ________ would be most consistent with a relatively high growth rate of firm earnings and dividends.

A firm has a return on equity of 20% and a dividend payout ratio of 30%. The firm’s anticipated growth rate is

Dividend discount models and P/E ratios are used by __________ to try to find mispriced securities.

The most appropriate discount rate to use when applying a FCFE valuation model is the

Which of the following highlights traders’ opinions about the market?

The number of stocks hitting new 52-week highs is a(n)

A bar chart is used to illustrate

Which of the following is most closely associated with the terms “primary trend,” “intermediate trend,” and “short-term trend”?

Which type of chart has no time horizon?

A higher open on next trading day of hammer indicates that

What does a decline below support level indicate?

Which of the following candlestick pattern look like star falling from sky with a tail trailing it?

Day traders must have proper knowledge of

A daily fluctuation of little importance is called

Which of the following is not a Dow Theory?

What are one of the most popular and easy to use tools available to the technical analyst?

The method of moving averages is used for which of the following purposes?

Traders use the _________ due to the way it represents price, eliminates noise and shows clear trends.

For drawing the Kagi Chart, the first step is to calculate the

The thin lines at the top and bottom represent the space between the open or close and the high or low are referred to as

The Beta is a measure of the ______ of a security that cannot be avoided through diversification.

Price movements that are caused by short-term deviations of prices from the underlying trend line are called

Which of the following consist of five sub-waves that make net movement in the same direction as the trend of the next-largest degree?

A downtrend remains in place until

Which of he following is a basic assumptions of technical analysis in contrast to fundamental analysis?

The advance/decline line is typically used to

Right of stockholders of firm that new shares must be offered to existing stockholders first, rather than new stock holders is classified as

Public issue, Rights issue, Private placements and Preferential allotment are the ways for issue of shares which are not existing before can be done in

Which portfolio will mimic the performance of a price-weighted index?

Which of the following statements about the real rate of return is true?

A preferred stock will pay a dividend of Rs. 3.00 in the upcoming year, and every year thereafter, for three year. You require a return of 9% on this stock. Use the constant growth model to calculate the intrinsic value of this preferred stock?

Inflationary expectations are important because widespread changes in inflationary expectations affect

Equity analysts provides estimates of earnings and earnings growth for future, using historical data and

A lady bought 100 shares of a leading diamond mining company with an expected return of 20 percent per year. The following day the company’s president announced a major new discovery in Arkansas. The stock price immediately doubled. This scenario probably best illustrates that the

A monopolized market is in long-run equilibrium when

In which stage of the product life cycle is advertising and promotion aimed at retaining existing customers and persuading customers to switch from competitor products?

In the Boston Consulting Group matrix, unsuccessful products move around the matrix in which order?

Which of the following statements is most correct regarding the current ratio for a firm that uses industry averages and a peer benchmark as their comparison?

If a company’s share price falls, then its P/E ratio and dividend yield?

Given the following information, find return on equity (ROE)?
Net income after tax = Rs. 500,000
Preferred dividend = Rs. 20,000
Common equity = Rs. 35,08,000
Earnings per share = Rs. 4.81

In conducting a common-size analysis every balance sheet item is divided by __________ and every income statement is divided by _______________.

What is the collection and interpretation of information about forces, events, and relationships that may affect the organization?

A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has

The market capitalization rate on the stock of Flex steel Company is 12%. The expected ROE is 13% and the expected EPS are Rs. 3.60. If the firm’s plowback ratio is 50%, the P/E ratio will be

The required rate of return on equity is the most appropriate discount rate to use when applying a

Low Tech Company has an expected ROE of 10%. The dividend growth rate will be ________ if the firm follows a policy of paying 40% of earnings in the form of dividends.

Which of the following is a correct statement regarding the Confidence Index?

A firm that has an ROE of 12% is considering cutting its dividend payout. The stockholders of the firm desire a dividend yield of 4% and a capital gain yield of 9%. Given this information which of the following statement(s) is/are correct?
I. All else equal the firm’s growth rate will accelerate after the payout change
II. All else equal the firm’s stock price will go up after the payout change
III. All else equal the firm’s P/E ratio will increase after the payout change

An underpriced stock provides an expected return which is ____________ the required return based on the capital asset pricing model (CAPM).

Firm A is high risk and Firm B is low risk. Everything else equal, which firm would you expect to have a higher P/E ratio?

Which of the following compares a day’s closing price to a recent range of prices to determine if a market is overbought or oversold?

Which of the following do technical analysts believe is a lower bound on a stock’s price?

Which type of chart includes daily high price, low price, opening price, and closing price?

When technical analysts say that a stock has “good relative strength,” they mean that

A Bullish Divergence represents __________ price pressure and a Bearish Divergence represents _________ price pressure.

Which of the following highlights traders’ opinions about the market?

Which of the following is not a basic tenet of the Dow Theory?

Which of the following is not an example of breadth indicators?

Which of the following measures the extent of current change in the price of securities and evaluates the oversold and overbought positions?

Which of the following is NOT related to the “support and resistance” in the context of technical stock analysis?

Consider a stock, with an expected dividend per share next period of Rs. 1, a cost of equity of 15%, and an expected growth rate of 6% forever. The value of this stock is

The ________ allows for two stages of growth – an initial phase where the growth rate is not a stable growth rate and a subsequent steady state where the growth rate is stable and is expected to remain so for the long term.

Which of the following consist of three, or a combination of three, sub-waves that make net movement in the direction opposite to the trend of the next-largest degree?

Resistance and support areas for a stock market index are viewed as technical indicators of

In discussions of financial market efficiency, which of the following is not one of the stylized forms of market efficiency?

Which of the following intraday changes in the Dow Jones Industrials Average (DJIA) will trigger a circuit breaker halting NYSE trading for one hour?

On 1st Feb 2010, Mr. AB bought 100 shares of SMB Company at SR50 per share. In March 2010, he received dividend of SR1.00 per share. On 31 July 2010, he sold his shares for SR54 per share. What is his annualized holding period return?

You want to sell some shares of company ABC only if it shows sign of declining. The current market price is SR55. You will sell the shares when it drops to SR52 per share, but you don’t want to sell if it drops further than SR50. What type of order should you place?

It was reported in the network news that Dow-Jones Industrial Averages (DJIA) jumped by 500 points from 10,000 to 10,500 in the month of January. This means

Felton Farm Supplies, Inc., has an 8 percent return on total assets of $300,000 and a net profit margin of 5 percent. What are its sales?

Barriers to entry affect the ability of firms outside an industry to enter and take advantage of profit opportunities. Which of the following is not an example of such a barrier?

Which of the following items is not a criticism of the five forces model?
i) The analysis is essentially static, whereas industries constantly change.
ii) No force is deemed more important than the others.
iii) In viewing all the forces as threats it does not allow for co-operation.
iv) It stresses the environment to the exclusion of internal influences on strategy.
v) The model was developed in the 1970s and is now obsolete.

A company’s net income before income tax is $55,000. Income tax for the year was $5,000. Dividend requirements for preferred stock are $20,000. There are 20,000 shares of common stock outstanding. Earnings per common stock are

Versatile Company is expected to pay a dividend of Rs. 3.50 in the coming year. Dividends are expected to grow at a rate of 10% per year. The risk-free rate of return is 5% and the expected return on the market portfolio is 13%. The stock is trading in the market today at a price of Rs. 90.
What is the market capitalization rate and what is the approximate beta of Versatile Company?

You wish to earn a return of 11% on each of two stocks, C and D. Stock C is expected to pay a dividend of $3 in the upcoming year while Stock D is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends for both stocks is 7%. The intrinsic value of stock C

You wish to earn a return of 12% on each of two stocks, A and B. Each of the stocks is expected to pay a dividend of $2 in the upcoming year. The expected growth rate of dividends is 9% for stock A and 10% for stock B. The intrinsic value of stock A

A firm has current assets which could be sold for their book value of $10 million. The book value of its fixed assets is $60 million but they could be sold for $95 million today. The firm has total debt at a book value of $40 million but interest rate changes have increased the value of the debt to a current market value of $50 million. This firm’s market to book ratio is

Suppose that in 2009 the expected dividends of the stocks in a broad market index equaled $240 million when the discount rate was 8% and the expected growth rate of the dividends equaled 6%. Using the constant growth formula for valuation, if interest rates increase to 9% the value of the market will change by

Yashoda Corp. is expected to pay a dividend of Rs. 1.50 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 6% and the expected return on the market portfolio is 14%. The stock of Yashoda Corp. has a beta of 0.75. The intrinsic value of the stock is

If there are profit opportunities in the stock market, but they take a long time to realize, which stochastic process most closely reflects this behavior?

Which of the following may be considered as justifications for using fundamental stock analysis as opposed to technical analysis?
I. Fundamentalists believe that their analysis is based on sound financial theory and economic reasons.
II. The value of a security is dependent on its cash flows; if cash flows are expected to increase in the future, its present value increases, and vice-versa.
III. Due to much accounting flexibility, financial statements are not sufficiently accurate to depend on for a reliable stock analysis.
IV. Because information comes to the market in random fashion, price changes are random and there should not be a trend in the market price.

Estimated EPS of ABC Ltd. for next year is Rs. 132. Assume PE multiple of 22 (Forward P/E) for the next year. Then the target price of ABC Ltd. works out to

After lengthy trial and error, you discover a trading system that would have doubled the value of your investment every six months if applied over the last three years. Which of the following problems makes it difficult to conclude that this is an example of market inefficiency?