Question

12.Which of the following statements is (are) correct?

(x)Although the NASDAQdoes have some large firms, it is mostly composed of small high-technology firms.

(y)Since the DJIA is composed of the 30 largest companies in the U.S, it is not uncommon for the NASDAQand DJIA to move in opposite directions on any giventradingday.

(z)The S&P 500 index is usually higher than the DJIA because the DJIA is composed of the 30 largest companies and the S&P is composed of 500 companies from ten different sectors of the economy.

A.(x), (y) and (z)B.(x) and (y) onlyC.(x) and (z) onlyD.(y) and (z) onlyE.(x) only

13.Which of the following statements is (are) correct?

(x)Preferred stock is valued as if it were a perpetuity because preferred stock dividends are assumed to be infinite in they may be delayed at times.

(y)Preferred dividends are typically given morelegal priority than bond interest payments.

(z)Preferred dividends have a higher payment priority than do common dividends.

A.(x), (y) and (z)B.(x) and (y) onlyC.(x) and (z) onlyD.(y) and (z) onlyE.(z) only

20.Red Rock, Inc.paid a dividend of $1.62per share yesterday. Its dividends are expected to grow at a steady rate of 6.0 percent per year. What are Red Rock’s dividends expected to be for the next three years?

A.$1.62, $1.68, $1.74

B.$1.62, $1.72, $1.72

C.$1.62, $1.72, $1.82

D.$1.72, $1.82, $1.82

E.$1.72, $1.82, $1.93

Answer 1

12) The correct answer is B. (x) and (y) only. Nasdaq is composed of both small technology companies and some large companies from different sectors.Because the composition of DJIA and Nasdaq is different, they both can trade in opposite direction on a given day.

13) The correct answer is C. (x) and (z) only. The valuation of preferred stock is done by assuming it as perpetuity and preferred dividends are paid prior to the common dividends as per law. Preferred shareholders have the priority over common shareholders.

14) Calculation of dividend for next 3 year @ 6% =

Year 1                            Year 2                     Year 3

$1.62 + 6% of $1.62       $1.72 + 6% of $1.72 $1.82 + 6% of $1.82

= $1.62 + 0.0972           = $1.72 + 0.1032                = $1.82 + 0.1092

= $1.72 (approx)           = $1.82 (approx)                 = $1.93 (approx)

Therefore, the correct answer is E.