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IIM Ahmedabad presents STOCK MANIAC (Qualifier Round)

Question (1):
(I) A share of common stock in a firm represents an ownership interest in that firm. (II) A share of preferred stock is as much like a bond as it is like common stock.
   
   
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Question (2):
The most active stock exchange in the world is the
   
   
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Question (3):
A stock currently sells for $25 per share and pays $0.24 per year in dividends. What is an investor’s valuation of this stock if she expects it to be selling for $30 in one year and requires 15 percent return on equity investments?
   
   
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Question (4):
Which of the following is not an element of the Gordon growth model of stock valuation?
   
   
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Question (5):
According to the Gordon growth model, what is an investor’s valuation of a stock whose current dividend is $1.00 per year if dividends are expected to grow at a constant rate of 10 percent over a long period of time and the investor’s required return is 11 percent?
   
   
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Question (6):
The PE ratio approach to valuing stock is especially useful for valuing
   
   
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Question (7):
A weakness of the PE approach to valuing stock is that it is
   
   
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Question (8):
The main cause of fluctuations in stock prices is changes in
   
   
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Question (9):
Which of the following statements about trading operations in an organized exchange are correct?
   
   
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Question (10):
A firm is expected to pay a dividend of $1.00 next year and the dividend is expected to grow at a constant rate of 4 percent over time. Some investors have required returns on investments in equity of 12 percent, some 10 percent, and some 8 percent. The market price of this firm’s stock will be slightly above
   
   
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Question (11):
The presence of _________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.
   
   
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Question (12):
Common stock is the riskiest corporate security, followed by preferred stock and then bonds.
   
   
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Question (13):
A company’s $100 par perpetual preferred stock has a dividend rate of 7 percent and a required rate of return of 11 percent. The company’s earnings are expected to grow at a constant rate of 3 percent per year. If the market price per share for the preferred stock is $75, the preferred stock is most appropriately described as being:
   
   
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Question (14):
An analyst gathers the following information about two companies for the year ending 31 December 2008:nnWhich of the following best describes the expected growth rate of Company 1? The expected growth rate of Company 1 compared to Company 2 is:
   
   
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Question (15):
Securities not listed on one of the exchanges trade in the over-the-counter market. In this exchange, dealers “make a market” by
   
   
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Question (16):
Which of the following is not an advantage of Electronic Communications Networks (ECNs)?
   
   
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Question (17):
Compared to investors with long investment time horizons, investors with short investment time horizons most likely require:
   
   
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Question (18):
Which of the following statements regarding the Markowitz efficient frontier is least likely to be correct? The optimal portfolio for:
   
   
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Question (19):
Suppose the average industry PE ratio for auto parts retailers is 20. What is the current price of Auto Zone stock if the retailer’s earnings per share are projected to be $1.85?
   
   
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Question (20):
(I) The market price of a security at a given time is the highest value any investor puts on the security. (II) Superior information about a security increases its value by reducing its risk.
   
   
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Question (21):
A company currently has a debt-to-equity ratio of 1.25. Common shareholder’s equity is $4,000,000, consisting of 1.5 million shares outstanding with a current price of $28/share. Part of the company’s debt currently outstanding is $1,000,000 of convertible bonds. Each $1,000 par value bond can be converted into 50 common shares at any time during the next three years. The coupon rate on the bonds is 6 percent with interest paid annually. If all convertible bonds are converted, the company’s debt-capital ratio is closest to:
   
   
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Question (22):
The 2001 terrorist attacks and the Enron financial scandal caused anticipated dividend growth to _________, investors’ required return on equity to _________, and stock prices to _________.
   
   
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Question (23):
A stock’s market value will be higher the higher is the investor’s required rate of return.
   
   
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Question (24):
A stock’s market value will be higher the higher is its expected dividend stream.
   
   
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Question (25):
Stock values computed by valuation models may differ from actual market prices because it is difficult to
   
   
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Question (26):
Holding other things constant, a stock’s value will be highest if its most recent dividend is
   
   
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Question (27):
A company has just issued $5 million of mandatory redeemable preferred shares with a par value of $100 per share and a 7 percent dividend. The issue matures in 5 years. Which of the following statements is least likely correct? The company’s:
   
   
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Question (28):
In the generalized dividend valuation model a stock’s value depend only on
   
   
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Question (29):
In the one-period valuation model, a stock’s value falls if the _________ rises.
   
   
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Question (30):
In the one-period valuation model, a stock’s value will be higher
   
   
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Question (31):
A stock currently sells for $30 per share and pays $1.00 per year in dividends. What is an investor’s valuation of this stock if he expects it to be selling for $37 in one year and requires 12 percent return on equity investments?
   
   
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Question (32):
Preferred stockholders hold a claim on assets that has priority over the claims of
   
   
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Question (33):
(I) Preferred stockholders hold a claim on assets that has priority over the claims of common stockholders, but after that of bondholders. (II) Firms issue preferred stock in far greater amounts than common stock.
   
   
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Question (34):
In order to obtain an income of Rs. 650 from 10% stock at Rs. 96, one must make an investment of:
   
   
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Question (35):
A man bought 20 shares of Rs. 50 at 5 discount, the rate of dividend being 13 . The rate of interest obtained is
   
   
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Question (36):
The market value of a 10.5% stock, in which an income of Rs. 756 is derived by investing Rs. 9000, brokerage being %, is:
   
   
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Question (37):
Sakshi invests a part of Rs. 12,000 in 12% stock at Rs. 120 and the remainder in 15% stock at Rs. 125. If his total dividend per annum is Rs. 1360, how much does he invest in 12% stock at Rs. 120?
   
   
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Question (38):
Rs. 9800 are invested partly in 9% stock at 75 and 10% stock at 80 to have equal amount of incomes. The investment in 9% stock is:
   
   
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Question (39):
Which of the following statements about basis risk is incorrect?
   
   
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Question (40):
An analyst is doing a study on the effect on option prices of changes in the price of the underlying asset. The analyst wants to find out when the deltas of calls and puts are most sensitive to changes in the price of the underlying. Assume that the options are European and that the Black-Scholes formula holds. An increase in the price of the underlying has the largest absolute value impact on delta for:
   
   
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Question (41):
Suppose that the market price of Company X is $45 per share and that of Company Y is $30. If X offers three-fourths a share of common stock for each share of Y, the ratio of exchange of market prices would be:
   
   
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Question (42):
Interest rates are important to financial institutions since an interest rate increase _________ the cost of acquiring funds and _________ the income from assets.
   
   
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Question (43):
Which of the following can be described as involving direct finance?
   
   
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Question (44):
In financial markets, lenders typically have inferior information about potential returns and risks associated with any investment project. This difference in information is called
   
   
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Question (45):
Which of the following is not an objective of the SEBI?
   
   
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Question (46):
The SEC requires firms to submit various documents to increase the flow of information to investors but does not verify the accuracy of that information.
   
   
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Question (47):
The Gordon growth model assumes that a stock’s dividend grows at a constant rate forever.
   
   
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Question (48):
Holding other things constant, a stock’s value will be highest if the investor’s required return on investments in equity is
   
   
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Question (49):
A basic principle of finance is that the value of any investment is
   
   
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Question (50):
The term structure of interest rates is
   
   
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