WorksheetsSeminar 10 — QUIZ 3 (Extraction)
Total questions: 20
Worksheet time: 40mins
What are the main types of financial markets based on asset class and maturity?
Stock markets
Bond markets
Money markets
All of the above
Why are financial markets important to the health of the economy?
They channel funds from unproductive to productive uses
They facilitate risk management
They promote innovation and entrepreneurship
All of the above
How do financial institutions reduce monitoring costs associated with fund flow?
By increasing transaction costs
By providing expertise and specialization
By limiting access to information
By reducing diversification
What is the primary function of commercial banks?
Capital raising
Trading activities
Deposits and loans
Mergers & acquisitions
What is the potential risk faced by lenders in financial intermediation?
Credit risk
Liquidity risk
Interest rate risk
All of the above
Which transaction represents a primary market activity?
IBM sells $5 million of GM preferred stock
Prudential Insurance Co. sells $10 million of GM common stock
IBM issues $200 million of new common stock
The Magellan Fund buys $100 million of previously issued IBM bonds
When interest rates decrease, what is the likely response from consumers?
Decrease in investment spending
Increase in borrowing for purchases
Increase in savings
Decrease in mortgage applications
Which factor does not determine the nominal interest rate on a security?
Default risk
Real risk-free rate
Transaction costs
Inflation
What might be a challenge for individual lenders in a world without financial institutions?
Reduced liquidity risk
Lower transaction costs
Difficulty in assessing creditworthiness
Higher interest rates
What risk does a borrower face in financial intermediation?
Credit risk
Interest rate risk
Inflation risk
All of the above
Which of the following is NOT a characteristic of common stock?
Voting rights
Residual claim on assets
Guaranteed fixed dividends
Limited liability
Preferred stockholders generally:
Receive dividends only after common shareholders
Have priority in receiving dividends over common shareholders
Always have voting rights
Are last in line during liquidation
The value of a preferred stock is usually calculated using the formula for:
Annuity
Growing perpetuity
Perpetuity
Bond valuation
A preferred stock pays an annual dividend of $6. If the required return is 12%, what is its value?
$36
$50
$72
$60
Paint.com preferred stock pays $3.40 annually and sells for 40. What is the expected return?
6.8%
8.0%
8.5%
10.2%
ABC stock sells for $22.50, expects a $2 dividend, and has 10% constant growth. Expected return equals:
10%
18.9%
12.5%
22%
Cotton Company preferred stock pays $4.50 annually. If required return is 14%, the value is approximately:
$28.50
$32.14
$36.00
$40.00
A stock will pay $8.50 next year and be worth $120 at year-end. Required return is 10%. What is its current value?
$110
$115
$116.82
$118.20
A firm paid a dividend of $40. Growth is 4% and the required return is 10%. What is the stock price?
$600
$693.33
$720
$800
Mercier Corp stock sells for $95 and paid a $5 dividend. Growth = 8%. What is the required return?
10.2%
12.8%
13.7%
15%
