1. Assume that financial markets are semistrong-form efficient and that no private information is available. Which of the following statements is false? A. All of the statements are true.
2. At the end of 2020, Crane Industries, Incorporated stock price was $30.75. A year later, it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What rate of return did the common stockholders earn in 2021? A. 15.22%
3. At the end of 2020, Crane Industries, Incorporated stock price was $30.75. A year later, it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What was the percentage change in the share price in 2021? A. 13.43%
4. Cumulative preferred stock A. includes the right to receive regular dividends that were not declared (paid) in prior years.
5. If Smart Company issues 1,400 shares of $8 par value common stock for $95,000, A. Paid-In Capital in Excess of Par will be credited for $83,800.
When a stock has a par value, common stock would be recorded at the par value times the number of shares issued ($8 × 1,400). Paid-in capital would be recorded as cash received ($95,000) minus par value ($11,200).
6. If Smart Company issues 1,400 shares of $8 par value common stock for $95,000, A. Paid-In Capital in Excess of Par will be credited for $83,800.
7. If Smart Company issues 1,500 shares of $8 par value common stock for $91,000, A. Paid-In Capital in Excess of Par will be credited for $79,000.
When a stock has a par value, common stock would be recorded at the par value times the number of shares issued ($8 × 1,500). Paid-in capital would be recorded as cash received ($91,000) minus par value ($12,000).
8. If Smart Company issues 1,500 shares of $8 par value common stock for $91,000, A. Paid-In Capital in Excess of Par will be credited for $79,000.
When a stock has a par value, common stock would be recorded at the par value times the number of shares issued ($8 × 1,500). Paid-in capital would be recorded as cash received ($91,000) minus par value ($12,000).
9. includes the right to receive regular dividends that were not declared (paid) in prior years. A. Cumulative preferred stock
10. Individuals who continually monitor the financial markets seeking mispriced securities A. make the markets increasingly more efficient.
11. Maria just purchased a bond which pays $40 in interest every six months. The $40 interest payment is also called the A. coupon.
12. One of the main disadvantages of the corporate form of business is A. double taxation.
13. One of the main disadvantages of the corporate form of business is A. double taxation.
14. Steak Company acquired a building valued at $164,500 for property tax purposes in exchange for 10,300 shares of its $7 par common stock. The stock is widely traded and selling for $15 per share. At what amount should the building be recorded by Steak Company? A. $154,500
15. Steak Company acquired a building valued at $164,500 for property tax purposes in exchange for 10,300 shares of its $7 par common stock. The stock is widely traded and selling for $15 per share. At what amount should the building be recorded by Steak Company? A. $154,500
An asset exchanged for stock is valued at the verifiable market value (10,300 × $15). A property tax evaluation would not really be considered a market value. A widely traded stock value would be a market value and should be used to record the asset.
16. The major rights that accompany ownership of a share of stock include all of the following EXCEPT A. the right to use the assets of the company.
17. The major rights that accompany ownership of a share of stock include all of the following EXCEPT A. the right to use the assets of the company.
18. The number of shares of stock that a corporation can issue as stated in its charter is referred to as A. authorized.
19. The number of shares of stock that a corporation can issue as stated in its charter is referred to as A. authorized.
20. True or False: After issue, the market price of a fixed-rate bond can differ substantially from its par value. A. True
21. True or False: Bond investors should be more concerned with real returns than with nominal returns. A. True
22. True or False: In a strong-form efficient market, insider trading is not profitable. A. True
23. What is the holding period return for the year on a bond with a par value of $1,000 and a coupon rate of 8.5% if its price at the beginning of the year was $1,215 and its price at the end of the year was $1,020? Assume interest is paid annually. A. −9.05%
24. Which of the following are the most likely reasons for why a stock price might not react at all on the day that new information related to the stock issuer is released? A. 3 and 4 only
25. Which of the following increases retained earnings? A. Net income
26. Which of the following is NOT a term used to refer to owners’ equity in a corporation? A. Members’ equity
27. Which of the following is NOT true of a corporation? A. The owners are personally liable for corporate actions.
28. Which of the following is NOT true of a corporation? A. The owners are personally liable for corporate actions.
29. Which of the following securities has a purely fixed claim against a firm’s cash flows? A. Bonds
30. Which of the following securities has a purely residual claim against a firm’s cash flows? A. Common stock
31. Which of the following statements are true? A. 1, 2, and 4 only
32. Which of the following statements regarding junk bonds is true? A. Junk bonds have higher priority in bankruptcy than preferred stock.
33. Which of the following statements regarding preferred stock is true? A. Cumulative preferred stock has a right to receive regular dividends that were not declared (paid) in prior years.
34. Which of the following statements related to market efficiency tend to be supported by current evidence? A. 1, 2, and 3 only
35. Which of the following would allow a corporation to issue a bond at a lower coupon rate, all else equal? A. None of the options are correct.
36. Which one of the following accurately orders the average rate of return on financial securities from highest to lowest over most of recorded market history (the 1928-2020 period)? A. Common stocks, long-term corporate bonds, long-term government bonds, short-term government bills
37. Which one of the following statements is true? A. Historically, common stockholders have earned a risk premium as compensation for risk borne in excess of government bonds.
38. Which one of the following statements is true? A. None of the options are correct.
39. You bought a yen-denominated corporate bond at the beginning of the year for ¥100,000. The bond paid 2.5% annual interest and was trading for ¥105,000 at year-end. What holding period return, measured in yen, did you earn on the bond? A. 7.5%
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