problem1. Which of the following statements is acceptable?
a. Preferred dividends are not basically cumulative.
b. The preferred stock of a given firm is basically less risky to investors than the same firm's common stock.
c. Preferred stockholders have a priority over bondholders in event of bankruptcy to income, however not to the proceeds in the liquidation.
d. A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.
e. Corporations can’t buy the preferred stocks of other corporations.
problem2. Which of the following statements best describes what you must anticipate if you randomly select stocks and add them to your portfolio?
a. Adding more such stocks will lessen the portfolio's unsystematic, or diversifiable, risk.
b. Adding more such stocks will lessen the portfolio's beta coefficient and thus its systematic risk.
c. Adding more such stocks will raise the portfolio's expected rate of return.
d. Adding more such stocks will have no consequence on the portfolio's risk.
e. Adding more such stocks will lessen the portfolio's market risk but not its unsystematic risk.
problem3. Which of the following statements is acceptable?
a. Typically, a firm's EBIT must exceed its EBITDA.
b. If a firm is more profitable than average (e.g., Google), we would normally anticipate to see its stock price exceed its book value per share.
c. If a firm is more profitable than most other firms, we would normally anticipate seeing its book value per share exceed its stock price, especially after various years of high inflation.
d. The more depreciation a firm has in a given year, the higher its EPS, other things held stable.
e. Typically, a firm's DPS must exceed its EPS.
problem4. Other things held stable, the value of an option depends on the stock's price, the risk-free rate, and the
a. Variability of stock price.
b. Option's time to maturity.
c. Strike price.
d. All of these.
e. None of these.
problem5. Other things held stable, which of the following actions would raise the amount of cash on a company's balance sheet?
a. The company gives customers more time to pay their bills.
b. The company repurchases common stock.
c. The company issues new common stock.
d. The company buys a new piece of equipment.
e. The company pays a dividend.