Finance and Stock Market Quiz

Stock splits change the divisor in a price-weighted index but do not result in any net change in the divisor of a value-weighted index.

• True

• False

The NASDAQ automatic order execution system for individual traders placing buy or sell orders of 1,000 or fewer shares is called the:

• Instinet Network.

• NASDAQ/AMEX Joint Program.

• ECN Network.

• E*Trade Online Program.

• SOES.

Suppose that over the last 10 to 15 years significantly large numbers of investors have been able to earn abnormal returns from using the firm's publicly available financial information to forecast growth in earnings and dividends. This would be evidence that the markets are not:

• I only

• I, II, and III

• II and III only

• III only

• I and II only

You buy a stock for $30 per share and sell it for $38 after you collect a $1.00 per share dividend. Your pretax capital gain yield is __________ and your pretax dividend yield is __________.

• 22.82 percent; 1.00 percent

• 2.67 percent; 3.33 percent

• 26.67 percent; 3.33 percent

• 26.67 percent; 2.17 percent

• 3.33 percent; 22.78 percent

Computerized markets that automatically match orders between buyers and sellers and are used primarily by institutional traders are called:

• SPIDRS.

• OTC bulletin boards.

• Index markets.

• ECNs.

According to the strong form of efficient market hypothesis:

• Using insider information one can earn abnormally high returns from stocks.

• Private information is of no help in earning abnormally high returns.

• Using past price and volume information one can earn abnormally high returns from stocks.

• Financial statement analysis can be used to earn abnormally high returns from stocks.

In the event of bankruptcy, a firm's janitor must be paid all of the salary owed to him before stockholders receive anything.

• True

• False

Suppose you own 500,000 shares of common stock in a firm with 40 million total shares outstanding. The firm announces a plan to sell an additional 5 million shares through a rights offering. The market value of the stock is $32.50 before the rights offering and the new shares are being offered to existing shareholders at a $2.50 discount. If you exercise your preemptive rights, how many of the new shares can you purchase?

• 32,500 shares

• 62,500 shares

• 100,000 shares

• 50,000 shares

Preferred stockholders have a claim senior to common stock but junior to bond holders.

• True

• False

Which of the following is/are true about specialists? I. Investment banks generally cannot be specialists. II. Specialists are used by the NASDAQ system. III. Market and limit orders are transacted at specialist posts, but the specialist's own account orders are executed elsewhere. IV. Specialists help maintain continuous trading.

• I and IV only

• III only

• II, III, and IV only

• I, II, and III only