CHAPTER 6
Stock Valuation
I. DEFINITIONS
GROWING PERPETUITY
a 1. An asset characterized by cash flows that increase at a constant rate forever is called a:
a. growing perpetuity.
b. growing annuity.
c. common annuity.
d. perpetuity due.
e. preferred stock.
Difficulty level: Easy
DIVIDEND GROWTH MODEL
b 2. The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model.
a. zero growth
b. dividend growth
c. capital pricing
d. earnings capitalization
e. discounted dividend
Difficulty level: Easy
DIVIDEND YIELD
c 3. Next year’s annual dividend divided by the current stock price is called the:
a. yield to maturity.
b. total yield.
c. dividend yield.
d. capital gains yield.
e. earnings yield.
Difficulty level: Easy
CAPITAL GAINS YIELD
d 4. The rate at which a stock’s price is expected to appreciate (or depreciate) is called the _____ yield.
a. current
b. total
c. dividend
d. capital gains
e. earnings
Difficulty level: Easy
PREFERRED STOCK
d 5. A form of equity which receives preferential treatment in the payment of dividends is called _____ stock.
a. dual class
b. cumulative
c. deferred
d. preferred
e. common
Difficulty level: Easy
PREFERRED STOCK
e 6. A _____ is a form of equity security that has a stated liquidating value.
a. bond
b. debenture
c. proxy
d. common stock
e. preferred stock
Difficulty level: Medium
COMMON STOCK
e 7. A form of equity which receives no preferential treatment in either the payment of dividends or in bankruptcy distributions is called _____ stock.
a. dual class
b. cumulative
c. deferred
d. preferred
e. common
Difficulty level: Easy
CUMULATIVE VOTING
b 8. The voting procedure whereby shareholders may cast all of their votes for one member of the board is called _____ voting.
a. democratic
b. cumulative
c.
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