1. A stock repurchase may be a signal that
a. a firm’s stock is overvalued
b. a firm’s stock is undervalued
c. a firm is short on funds
d. a firm’s bonds are overvalued
e. none of the above are accurate
2. If you are a tax paying investor you would generally
a. prefer capital gains over dividends even if they were both taxed at the same rate because the effective tax rate on capital gains is lower due to your ability to defer capital gains.
b. prefer dividends over capital gains because everyone knows dividends are critical to building personal wealth
c. be indifferent between dividends and capital gains.
d. prefer dividends over capital gains because everyone knows “a bird in the hand is worth two in the bush”
e. none of the above are correct
3. If a firm has a lot of great ideas and projects to invest in, the firm would prefer which dividend policy below?
Low dividend payout
High dividend payout
Either, since dividend policy has nothing to do with capital budgeting (projects the firm is investing in)
4. If an investor purchases a stock after the "ex-dividend" date, then
the investor receives the currently declared dividend since the seller is "ex-dividend" (i.e. without dividend)
the investor does not receive the currently declared dividend since the seller sold the stock "ex-dividend" (i.e. without dividend)
the investor has to report the dividend as taxable income
none of the above
5. Which of the following statements is (are) true regarding the signaling view (aka informational content) of dividend policy?
Stock market (prices) generally react positively to dividend increases (above expected)
Stock market (prices) generally react positively to dividend decreases (cuts)
Stock market (prices) generally react negatively to dividend increases (above expected)
Stock market (prices) generally react negatively to dividend decreases (cuts)
Both a & d
Both b & c
None of the above
6. Buying a put option would protect you from
a. the price of the underlying asset rising
b. the price of the underlying asset falling
c. having to buy the underlying asset at a higher price in the future.
d. none of the above.
7. Which of the following leases is (are) non-cancelable?
A. operating leases
b. financial (a.k.a. capital) leases
c. both are non-cancelable
8. The price at which the holder of a call option may buy the underlying asset is know as the
option price
exercise price
market price
common price
9. Limited liability makes the payoff (at liquidation of the firm) of a common stock look like the payoff of a
put option
forward contract
futures contract
call option
none of the above
10. If a firm executed a 3-for-1 stock split, you would expect that the value of
a. an investment in the firm should increase because having 3 stocks is clearly better than 1.
b. each new stock should be approximately 3 times the value of the original stock
c. each new stock should be approximately equal to the value of the original stock
d. each new stock should be approximately one-third of the value of the original stock
e. all of the above would be essentially equally probable outcomes