Fundamentals of Investing-Quiz 3

Companies typically issue new shares through an initial public offering (IPO).

• true
• FALSE

Every shareholder is a part owner of the firm and, as such, has a direct claim on a portion of the firm's assets.

• true
• FALSE

There is a stronger tendency for the stock market to increase in value rather than decrease in value over time.

• true
• FALSE

Which one of the following statements about common stock is true?

• A) Common stock can provide attractive capital appreciation opportunities.
• B) Dividends generally provide the greatest rate of return on common stocks.
• C) Common stocks generally have a negative rate of return over a ten-year period.
• D) The DJIA is the best indicator of the overall performance of common stocks.

While many stocks increase in value over the long run, most of the return on stocks comes from dividends.

• true
• FALSE

Firms tend to repurchase shares of their outstanding stock when they view the shares as undervalued.

• true
• FALSE

If a firm has a 2 million shares outstanding and its stock trades at $25 per share, the company also has $10,000,000 in debt. The company's market capitalization is

• A) $40,000,000.
• B) $49,000,000.
• C) $50,000,000.
• D) $60,000,000.

The Charbridge Inc. has 4 million shares of stock outstanding. The stock has a par value of $1.00 per share and is currently trading at $36 per share. Nicole estimates the investment value of this stock at $38.50. According to this information, the market capitalization of Charbridge is

• A) $144,000,000.
• B) $154,000,000.
• C) $4,000,000.
• D) $72 million.

Dividend yield is calculated by dividing

• A) the market price of one share of stock by the annual dividend per share.
• B) the annual dividend per share by the market price of one share of stock.
• C) earnings per share by market price per share.
• D) annual dividend per share by earnings per share.

Pilgrim Corp. stock currently sells for $25 per share? The annual dividend payment is $1.00 per share and earnings per share are $3.00. The dividend yield is ________ and the dividend payout ratio is ________.

• A) 12%; .4%
• B) 8.33%; 25%
• C) 4%; 33%
• D) 33%; 4%.