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Lesson #9 Quiz >> Financial Markets

Lesson #9 Quiz >> Financial Markets

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1. Market capitalization is calculated by using:

  • The total number of employee of a company.
  • The earnings of a company.
  • The price per share and the total number of outstanding shares.
  • The dividends of a company.

2. The greater an investor’s ownership in a corporation is, the greater:

  • is the amount of taxes to be paid by the company.
  • is the total number of shares he/she owns with respect to the total number of shares outstanding.
  • is the profitability of the company.
  • is the total number of shares he/she owns.

3. A firm must make its dividend payments to __________ before it makes any dividend payments to its ___________.

  • preferred shareholders
    • common shareholders

  • its Chief Executive Officer
    • preferred shareholders

  • the members of the board
    • bondholders

  • bondholders
    • preferred shareholders

4. The basic corporate charter: (check all that apply)

  • does not say that the firm ever has to raise debt. The board decides.
  • says that the firm must pay dividends during its lifetime.
  • says that the firm must repurchase some of its shares beyond a certain threshold of issuance.
  • does not say that the firm ever has to issue warrants, convertible debt or any other debt securities.

5. In the Pecking Order Theory, the companies prioritize their sources of financing in the following order:

  • (1) Debt, (2) Internal financing, (3) Equity.
  • (1) Internal financing, (2) debt issuance, (3) Equity.
  • (1) Equity, (2) Debt issuance, (3) Internal financing.
  • (1) Equity, (2) Internal financing, (3) Debt.

6. A dilution is:

  • The issuance of new debt by a company.
  • A sale of an investor’s shares.
  • A reduction in the ownership percentage of a share of stock caused by the issuance of new shares.
  • An increase in the ownership percentage of a share of stock caused by the issuance of new shares.

7. A share repurchase is: (check all that apply)

  • An alternative to paying dividends in order to return cash to investors.
  • The reverse of a dilution.
  • A program by which investors buy back their previously sold shares of a given company.
  • A program by which a company buys backs its own shares from the marketplace or from its shareholders (at a fixed price).

8. The price-to-earnings ratio: (check all that apply)

  • Indicates the percentage of profit that is paid out as dividends.
  • Shows how much an investor is willing to pay for the stock of the company for each dollar of the company’s earnings.
  • Effectively shows the number of years of earnings at which the company is valued given the current level of the share price.
  • Measures the funds provided by creditors versus the funds provided by owners.

9. Generally, a reduction in dividend is interpreted by investors as:

  • A non-event.
  • Good news, with often an increase of the stock price.
  • Bad news, with often a drop in the stock price.
  • A sign of future increase in profitability.

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