FINA 3317 EXAM 2 QUESTIONS WITH CORRECT ANSWERS LATEST UPDATE 2025/2026
Which of the following is correct?
A share of common stock in a firm represents an ownership interest in that firm.
A share of preferred stock is as much like a bond as it is like common stock.
Both a and b.
Neither a or b. - Answers Both a and b.
Preferred stockholders hold a claim on assets that has priority over the claims of
both common stockholders and bondholders.
neither common stockholders nor bondholders.
common stockholders, but after that of bondholders.
bondholders, but after that of common stockholders. - Answers common stockholders, but after
that of bondholders.
The riskiest capital market security is
preferred stock
common stock
corporate bonds
Treasury bonds - Answers common stock
A share of preferred stock in a firm represents an ownership interest
in that firm and allows stockholders to
vote.
receive fixed dividends.
receive residual dividends.
,receive interest payments. - Answers receive fixed dividends.
Securities not listed on one of the exchanges trade in the over-the-counter market. In this
exchange, dealers "make a market" by
buying stocks for inventory when investors want to sell.
selling stocks from inventory when investors want to buy.
doing both of the above.
doing neither of the above. - Answers doing both of the above.
broker market where a transaction can happen only when the broker can match buyers with
sellers.
Which of the following describes a seasoned offering?
An IPO of common stock for a well-known firm.
An IPO that is offered during the best buying season.
An additional equity issue from a publicly traded firm.
Any shares traded in the secondary market are seasoned offerings. - Answers An additional
equity issue from a publicly traded firm.
The value of common stock will likely decrease if:
the investment horizon decreases.
the growth rate of dividends increases.
the discount rate increases.
dividends are discounted back to the present. - Answers the discount rate increases.
Using Price = D1/(r-g).
What stock price reaction would you expect from a firm that unexpectedly raises its dividend
,permanently and by a substantial amount?
Price should rise, given dividend discount models.
Price should decline, given discounted cash flow analysis.
Price will remain constant, due to market efficiency.
Price will remain constant, due to random-walk behavior. - Answers Price should rise, given
dividend discount models.
Using Price = D1/(r-g).
In the calculation of rates of return on common stock, dividends are _____ and capital gains are
____.
guaranteed; not guaranteed
guaranteed; guaranteed
not guaranteed; not guaranteed
not guaranteed; guaranteed - Answers not guaranteed; not guaranteed
dividends are from "residual" income and capital gains are from fluctuations in market value of
the stocks which is not predictable or determined by any single individual or entity.
If The Wall Street Journal lists a stock's dividend as $1, then it is most likely the case that the
stock:
pays $1 quarterly, or an estimated $4 annually.
pays $0.25 quarterly, or an estimated $1 annually.
paid $1 during the past quarter, with no future dividends forecast.
paid $1 during the past year, with no future dividends forecast. - Answers pays $0.25 quarterly,
or an estimated $1 annually.
, The expected return on a common stock is composed of:
dividend yield.
capital appreciation.
both dividend yield and capital appreciation.
capital appreciation minus the dividend yield. - Answers both dividend yield and capital
appreciation.
Common stocks typically have which of the following that bonds do not have?
Voting rights
Fixed cash flows
Set maturity date
Tax deductibility of cash flows to investors - Answers Voting rights
With ____________ voting, all directors up for election are voted on by the shareholders at the
same time in one general election.
straight
participating
non-participating
cumulative - Answers cumulative
in cumulative voting, there are multiple wins and some weights. in straight voting, they vote for
one director at a time.
participating & non-participating refer to the dividend payments, not voting, where participating
preferred stocks can get dividends that are actually larger than promised and non-participating
preferred stocks get fixed dividends no matter what the profit is.
If all preferred dividend payments that have been missed must be paid before any common
stock dividend can be paid, the preferred stock is called _____________ preferred stock.
Which of the following is correct?
A share of common stock in a firm represents an ownership interest in that firm.
A share of preferred stock is as much like a bond as it is like common stock.
Both a and b.
Neither a or b. - Answers Both a and b.
Preferred stockholders hold a claim on assets that has priority over the claims of
both common stockholders and bondholders.
neither common stockholders nor bondholders.
common stockholders, but after that of bondholders.
bondholders, but after that of common stockholders. - Answers common stockholders, but after
that of bondholders.
The riskiest capital market security is
preferred stock
common stock
corporate bonds
Treasury bonds - Answers common stock
A share of preferred stock in a firm represents an ownership interest
in that firm and allows stockholders to
vote.
receive fixed dividends.
receive residual dividends.
,receive interest payments. - Answers receive fixed dividends.
Securities not listed on one of the exchanges trade in the over-the-counter market. In this
exchange, dealers "make a market" by
buying stocks for inventory when investors want to sell.
selling stocks from inventory when investors want to buy.
doing both of the above.
doing neither of the above. - Answers doing both of the above.
broker market where a transaction can happen only when the broker can match buyers with
sellers.
Which of the following describes a seasoned offering?
An IPO of common stock for a well-known firm.
An IPO that is offered during the best buying season.
An additional equity issue from a publicly traded firm.
Any shares traded in the secondary market are seasoned offerings. - Answers An additional
equity issue from a publicly traded firm.
The value of common stock will likely decrease if:
the investment horizon decreases.
the growth rate of dividends increases.
the discount rate increases.
dividends are discounted back to the present. - Answers the discount rate increases.
Using Price = D1/(r-g).
What stock price reaction would you expect from a firm that unexpectedly raises its dividend
,permanently and by a substantial amount?
Price should rise, given dividend discount models.
Price should decline, given discounted cash flow analysis.
Price will remain constant, due to market efficiency.
Price will remain constant, due to random-walk behavior. - Answers Price should rise, given
dividend discount models.
Using Price = D1/(r-g).
In the calculation of rates of return on common stock, dividends are _____ and capital gains are
____.
guaranteed; not guaranteed
guaranteed; guaranteed
not guaranteed; not guaranteed
not guaranteed; guaranteed - Answers not guaranteed; not guaranteed
dividends are from "residual" income and capital gains are from fluctuations in market value of
the stocks which is not predictable or determined by any single individual or entity.
If The Wall Street Journal lists a stock's dividend as $1, then it is most likely the case that the
stock:
pays $1 quarterly, or an estimated $4 annually.
pays $0.25 quarterly, or an estimated $1 annually.
paid $1 during the past quarter, with no future dividends forecast.
paid $1 during the past year, with no future dividends forecast. - Answers pays $0.25 quarterly,
or an estimated $1 annually.
, The expected return on a common stock is composed of:
dividend yield.
capital appreciation.
both dividend yield and capital appreciation.
capital appreciation minus the dividend yield. - Answers both dividend yield and capital
appreciation.
Common stocks typically have which of the following that bonds do not have?
Voting rights
Fixed cash flows
Set maturity date
Tax deductibility of cash flows to investors - Answers Voting rights
With ____________ voting, all directors up for election are voted on by the shareholders at the
same time in one general election.
straight
participating
non-participating
cumulative - Answers cumulative
in cumulative voting, there are multiple wins and some weights. in straight voting, they vote for
one director at a time.
participating & non-participating refer to the dividend payments, not voting, where participating
preferred stocks can get dividends that are actually larger than promised and non-participating
preferred stocks get fixed dividends no matter what the profit is.
If all preferred dividend payments that have been missed must be paid before any common
stock dividend can be paid, the preferred stock is called _____________ preferred stock.
