FIN 330
Fall 2014
Test 2
Dr. Clay M. Moffett
Student: _______________________________________
1. PJ Crew is a private firm that has decided to issue shares of stock to the general public for the first time. This stock
issue will be referred to as a(n):
A. seasoned offering
B. secondary offering
C. public service offering
D. initial public offering
E. syndicate underwriting
2. When a group of underwriters jointly work together to sell a new issue of securities, the underwriters form a(n):
A. underwriting cartel.
B. market union.
C. venture capital association.
D. Dutch market.
E. syndicate.
3. When an underwriting syndicate purchases an entire issue of new securities and guarantees the sale of shares, the
underwriting is known as a _____ underwriting.
A. Dutch auction
B. full-fledge
C. firm commitment
D. best efforts
E. guaranteed sale
4. The document that must be prepared in order to receive approval for a stock offering is called a:
A. tombstone.
B. prospectus.
C. offering agreement.
D. regulatory report.
E. offering paper.
5. Which one of the following best describes a broker?
A. intermediary who arranges trades between a buyer and a seller
B. trader who buys and sells from his or her inventory
C. firm which charges a commission for arranging a transaction
D. person who buys securities for his or her own account on an exchange floor
E. trader who transacts business on behalf of a securities issuer
6. Which one of the following prices will an investor pay to purchase shares of stock that are currently outstanding?
A. issue
B. option
C. bid
D. ask
E. primary
7. Which one of the following prices will an investor pay to purchase shares of stock that are currently outstanding?
A. issue
B. option
C. bid
D. ask
E. primary
8. An order to sell that involves a preset trigger point and coverts to a market order is called a _____ order.
A. limit
B. day
C. stop
D. short
E. market
9. What is the percentage of a firm's earnings that is distributed to shareholders called?
A. payout ratio
B. distribution percentage
C. retention ratio
D. dividend portion
E. outflow ratio
10. What is the accounting relationship in which earnings per share minus dividends equal the change in book value per
share called?
A. clean surplus relationship
B. economic value added relationship
C. accounting earnings identity
D. payout-retention identity
E. dividend valuation equation
11. Which one of the following statements related to stock indexes is correct?
A. The index divisor increases in value whenever a stock in the index undergoes a stock split.
B. A value-weighted index includes both dividends and capital gains.
C. The S&P 500 index is value-weighted.
D. The DJIA is value-weighted.
E. Index staleness is more apt to be a problem for the DJIA than for the Wilshire 5000.
12. A decrease in which one of the following will increase a firm's sustainable rate of growth?
A. net income
B. dividend payout ratio
C. total assets
D. retention ratio
E. earnings per share
13. Hazmat Dress Suits common stock is valued at $11.05 per share. The firm pays annual dividends which increase at a
constant rate. The last dividend paid was $1.20. The required return is 12 percent. What is the dividend growth rate?
A. 1.03 percent
B. 1.67 percent
C. 3.47 percent
D. 3.59 percent
E. 4.00 percent
14. Schmoo Do has net income of $164,000. The firm has 200,000 shares of common stock outstanding. The dividend for
this year is $0.61 per share. What is the retention ratio?
A. .220
B. .256
C. .314
D. .774
E. .780
15. DONTROCKTHEVOTE Co. just paid an annual dividend of $1.10 a share. Management estimates the dividend will
increase by 9 percent a year for the next four years. After that, the annual dividend growth rate is estimated at 3
percent. The required rate of return is 14 percent. What is the value of this stock today?
A. $12.55
B. $13.03
C. $16.78
D. $17.81
E. $18.54
16. Which one of the following states that investors cannot consistently earn positive excess returns?
A. market return hypothesis
B. current market hypothesis
C. efficient market hypothesis
D. risk-return theory
E. excess theory
17. Sahara Desert Tourism earnings per share of $2.35 and dividends per share of $1.10. The total equity of the firm is
$945,000. There are 30,000 shares of stock outstanding. What is the sustainable rate of growth?
A. 1.14 percent
B. 1.31 percent
C. 3.97 percent
D. 4.32 percent
E. 5.73 percent
18. Mountain Top Nursery is a relatively young firm which just paid its first annual dividend of $0.25 a share.
Management projects dividend increases of 10 percent per year for five years followed by a constant growth rate of 3.0
percent annually. What is this stock worth today if the applicable discount rate is 12.5 percent?
A. $3.59
B. $4.08
C. $5.42
D. $6.01
E. $6.59
19. Which one of the following states that investors cannot consistently earn positive excess returns?
A. market return hypothesis
B. current market hypothesis
C. efficient market hypothesis
D. risk-return theory
E. excess theory
20. Which one of the following is a research method used to study the effects news has on stock prices?
A. polarization
B. market analysis
C. event study
D. news theory
E. reaction hypothesis
21. Which one of the following terms best describes the information you know about a company that will have a
significant effect on the price of the company's stock once that information is released?
A. material public information
B. public information
C. abnormal information
D. private, non-material information
E. material non-public information
22. Which one of the following correctly identifies the phenomenon that states that one month has the greatest
tendency for small stocks to earn large returns?
A. January effect
B. March effect
C. September effect
D. October effect
E. December effect
23. Which one of the following terms is used to describe a sudden and significant collapse in market prices?
A. dive
B. recession
C. crash
D. adjustment
E. rebound
24. Stocks A, B, and C have identical risks. Stock A earns an annual return of 9.9 percent as compared to 9.6 percent
returns on stocks B and C. Given this, you can correctly assume that:
A. Stock A is overpriced.
B. the market return is 9.75 percent.
C. Stock A represents the smallest-sized firm.
D. Stock A has a positive excess return.
E. Stocks B and C represent firms that are in the process of merging.
25. The term "independent deviations from rationality" implies that:
A. irrational investors are absent from an efficient market.
B. arbitrage traders act independent of each other.
C. markets must be inefficient.
D. irrational investors behave differently from one another.
E. arbitrage traders act together to offset the actions of rational investors.
26. If the financial markets were regulated such that the markets maintained strong-form efficiency, then:
A. insider trading laws would be unnecessary.
B. all investors would earn equivalent rates of return.
C. risk premiums would vanish.
D. all investors would become arbitrage traders.
E. securities would tend to be continually underpriced.
27. If the market is semistrong-form efficient, then which one of the following statements is true?
A. Neither technical nor fundamental analysis leads to abnormal profits.
B. Technical analysts have the ability to earn excess profits but fundamental analysts cannot.
C. Fundamental analysts can earn excess profits but technical analysts cannot.
D. Both technical and fundamental analysts earn excess profits based on their research.
E. No answer can be determined as the form of market efficiency is unrelated to abnormal, or excess returns.
28. Which one of the following defines frame dependence?
A. Investors react differently to prospective gains and losses.
B. Investors tend to make more cognitive errors when they view investing as gambling.
C. Investors tend to be more irrational in bear markets than in bull markets.
D. Investors react differently depending on how an opportunity is presented.
E. Investors suffer from money illusion in bull markets but not in bear markets.
29. Which one of the following is a trader whose trades are not based on meaningful financial analysis or information?
A. specialist
B. arbitrageur
C. noise trader
D. sentiment trader
E. market maker
30. The belief that information you hold is superior to information held by other investors best describes:
A. over-confidence
B. the snakebite effect
C. the illusion of knowledge
D. the clustering illusion
E. loss aversion
31. Which one of the following market sentiment index (MSI) values represents the worst buying opportunity?
A. 0.16
B. 0.29
C. 0.48
D. 0.61
E. 0.82
32. Which one of the following is seen as a bullish indicator?
A. increased short selling
B. increased buying by odd-lot traders
C. shorter skirt lengths
D. a Super Bowl win by a American Football League team
E. a 15 day line crossing a 60 day line from above.
33. Arbitrage is best defined as:
A. Exploiting price differentials in similar markets
B. Simultaneously risking your cash exploiting price differentials of different assets
C. Simultaneously exploiting price differentials in separate markets
D. not taking risk
E. C & D
34. Effect is:
A. almost always an adjective
B. almost always a verb
C. almost always a noun
D. never a noun
E. none of the above
35. What is the most overused word ever, in the history of words?
A. which
B. actually
C. only
D. that
E, sex
36.
A.
B.
C.
D.
E.
Which word is a partner of ‘here’?
Their
Over
There
They’re
hear
37. Why were rules for writing a paper were added to my webpage?
A. clearly after reading some of the rough drafts, the need exists
B. my girlfriend who taught special education laughed when reading the careless mistakes
FIN 330 students were making
C. to prepare a prerequisite class to be added on how to write a paper
D. easy elimination for those who cut and paste off the internet believing I am an idiot and who want to risk their
academic and professional career
E. all of the above
330 Fall 10 T1 Key
1. Ugh Crew is a private firm that has decided to issue shares of stock to the general public for the first time. This stock
issue will be referred to as a(n):
A. seasoned offering
B. secondary offering
C. public service offering
D. initial public offering
E. syndicate underwriting
2. When a group of underwriters jointly work together to sell a new issue of securities, the underwriters form a(n):
A. underwriting cartel.
B. market union.
C. venture capital association.
D. Dutch market.
E. syndicate.
3. When an underwriting syndicate purchases an entire issue of new securities and guarantees the sale of shares, the
underwriting is known as a _____ underwriting.
A. Dutch auction
B. full-fledge
C. firm commitment
D. best efforts
E. guaranteed sale
4. The document that must be prepared in order to receive approval for a stock offering is called a:
A. tombstone.
B. prospectus.
C. offering agreement.
D. regulatory report.
E. offering paper.
5. Which one of the following best describes a broker?
A. intermediary who arranges trades between a buyer and a seller
B. trader who buys and sells from his or her inventory
C. firm which charges a commission for arranging a transaction
D. person who buys securities for his or her own account on an exchange floor
E. trader who transacts business on behalf of a securities issuer
6. Which one of the following prices will an investor pay to purchase shares of stock that are currently outstanding?
A. issue
B. option
C. bid
D. ask
E. primary
7. Which one of the following prices will an investor pay to purchase shares of stock that are currently outstanding?
A. issue
B. option
C. bid
D. ask
E. primary
8. An order to sell that involves a preset trigger point and coverts to a market order is called a _____ order.
A. limit
B. day
C. stop
D. short
E. market
9. What is the percentage of a firm's earnings that is distributed to shareholders called?
A. payout ratio
B. distribution percentage
C. retention ratio
D. dividend portion
E. outflow ratio
10. What is the accounting relationship in which earnings per share minus dividends equal the change in book value per
share called?
A. clean surplus relationship
B. economic value added relationship
C. accounting earnings identity
D. payout-retention identity
E. dividend valuation equation
11. Which one of the following statements related to stock indexes is correct?
A. The index divisor increases in value whenever a stock in the index undergoes a stock split.
B. A value-weighted index includes both dividends and capital gains.
C. The S&P 500 index is value-weighted.
D. The DJIA is value-weighted.
E. Index staleness is more apt to be a problem for the DJIA than for the Wilshire 5000.
12. A decrease in which one of the following will increase a firm's sustainable rate of growth?
A. net income
B. dividend payout ratio
C. total assets
D. retention ratio
E. earnings per share
13. Hazmat Dress Suits common stock is valued at $11.05 per share. The firm pays annual dividends which increase at a
constant rate. The last dividend paid was $1.20. The required return is 12 percent. What is the dividend growth rate?
A. 1.03 percent
B. 1.67 percent
C. 3.47 percent
D. 3.59 percent
E. 4.00 percent
14. Schmoo Do has net income of $164,000. The firm has 200,000 shares of common stock outstanding. The dividend for
this year is $0.61 per share. What is the retention ratio?
A. .220
B. .256
C. .314
D. .774
E. .780
Retention ratio = [$164,000 - (200,000 x $.61)] / $164,000 = .256
15. Southern Foods just paid an annual dividend of $1.10 a share. Management estimates the dividend will increase by 9
percent a year for the next four years. After that, the annual dividend growth rate is estimated at 3 percent. The
required rate of return is 14 percent. What is the value of this stock today?
A. $12.55
B. $13.03
C. $16.78
D. $17.81
E. $18.54
16. Which one of the following states that investors cannot consistently earn positive excess returns?
A. market return hypothesis
B. current market hypothesis
C. efficient market hypothesis
D. risk-return theory
E. excess theory
17. Sahara Desert earnings per share of $2.35 and dividends per share of $1.10. The total equity of the firm is $945,000.
There are 30,000 shares of stock outstanding. What is the sustainable rate of growth?
A. 1.14 percent
B. 1.31 percent
C. 3.97 percent
D. 4.32 percent
E. 5.73 percent
sustainable growth rate = [($2.35  30,000)/$945,000]  [1 - ($1.10/ $2.35)] = 3.97 percent
18. Mountain Top Nursery is a relatively young firm which just paid its first annual dividend of $0.25 a share.
Management projects dividend increases of 10 percent per year for five years followed by a constant growth rate of 3.0
percent annually. What is this stock worth today if the applicable discount rate is 12.5 percent?
A. $3.59
B. $4.08
C. $5.42
D. $6.01
E. $6.59
19. Which one of the following states that investors cannot consistently earn positive excess returns?
A. market return hypothesis
B. current market hypothesis
C. efficient market hypothesis
D. risk-return theory
E. excess theory
20. Which one of the following is a research method used to study the effects news has on stock prices?
A. polarization
B. market analysis
C. event study
D. news theory
E. reaction hypothesis
21. Which one of the following terms best describes the information you know about a company that will have a
significant effect on the price of the company's stock once that information is released?
A. material public information
B. public information
C. abnormal information
D. private, non-material information
E. material non-public information
22. Which one of the following correctly identifies the phenomenon that states that one month has the greatest
tendency for small stocks to earn large returns?
A. January effect
B. March effect
C. September effect
D. October effect
E. December effect
23. Which one of the following terms is used to describe a sudden and significant collapse in market prices?
A. dive
B. recession
C. crash
D. adjustment
E. rebound
24. Stocks A, B, and C have identical risks. Stock A earns an annual return of 9.9 percent as compared to 9.6 percent
returns on stocks B and C. Given this, you can correctly assume that:
A. Stock A is overpriced.
B. the market return is 9.75 percent.
C. Stock A represents the smallest-sized firm.
D. Stock A has a positive excess return.
E. Stocks B and C represent firms that are in the process of merging.
25. The term "independent deviations from rationality" implies that:
A. irrational investors are absent from an efficient market.
B. arbitrage traders act independent of each other.
C. markets must be inefficient.
D. irrational investors behave differently from one another.
E. arbitrage traders act together to offset the actions of rational investors.
26. If the financial markets were regulated such that the markets maintained strong-form efficiency, then:
A. insider trading laws would be unnecessary.
B. all investors would earn equivalent rates of return.
C. risk premiums would vanish.
D. all investors would become arbitrage traders.
E. securities would tend to be continually underpriced.
27. If the market is semistrong-form efficient, then which one of the following statements is true?
A. Neither technical nor fundamental analysis leads to abnormal profits.
B. Technical analysts have the ability to earn excess profits but fundamental analysts cannot.
C. Fundamental analysts can earn excess profits but technical analysts cannot.
D. Both technical and fundamental analysts earn excess profits based on their research.
E. No answer can be determined as the form of market efficiency is unrelated to abnormal, or excess returns.
28. Which one of the following defines frame dependence?
A. Investors react differently to prospective gains and losses.
B. Investors tend to make more cognitive errors when they view investing as gambling.
C. Investors tend to be more irrational in bear markets than in bull markets.
D. Investors react differently depending on how an opportunity is presented.
E. Investors suffer from money illusion in bull markets but not in bear markets.
29. Which one of the following is a trader whose trades are not based on meaningful financial analysis or information?
A. specialist
B. arbitrageur
C. noise trader
D. sentiment trader
E. market maker
30. The belief that information you hold is superior to information held by other investors best describes:
A. over-confidence
B. the snakebite effect
C. the illusion of knowledge
D. the clustering illusion
E. loss aversion
31. Which one of the following market sentiment index (MSI) values represents the worst buying opportunity?
A. 0.16
B. 0.29
C. 0.48
D. 0.61
E. 0.82
32. Which one of the following is seen as a bullish indicator?
A. increased short selling
B. increased buying by odd-lot traders
C. shorter skirt lengths
D. a Super Bowl win by a American Football League team
E. a 15 day line crossing a 60 day line from above.
33. Arbitrage is best defined as:
A. Exploiting price differentials in similar markets
B. Simultaneously risking your cash exploiting price differentials of different assets
C. Simultaneously exploiting price differentials in separate markets
D. not taking risk
E. C & D
34. Effect is:
A. almost always an adjective
B. almost always a verb
C. almost always a noun
D. never a noun
E. none of the above
35. What is the most overused word ever, in the history of words?
A. which
B. actually
C. only
D. that
E, sex
36.
A.
B.
C.
D.
E.
Which word is a partner of ‘here’?
Their
Over
There
They’re
hear
37. Why were rules for writing a paper were added to my webpage?
A. clearly after reading some of the rough drafts, the need exists
B. my girlfriend who taught special education laughed when reading the careless mistakes
FIN 330 students were making
C. to prepare a prerequisite class to be added on how to write a paper
D. easy elimination for those who cut and paste off the internet believing I am an idiot and who want to risk their
academic and professional career
E. all of the above