Q&A Hero

Q: Which of the following stocks is/are a growth stock(s)? A. Unilever B. Cummins, Inc C. Starbucks D. All of the above are growth stocks

Q: ___________________________ is an alternative to lending in which the financial institution purchases the equipment and rents it to its customers.

Q: The following stocks are examples of income stocks except: A. Cummins, Inc. B. Dow Chemicals C. Starbucks D. All of the above are income stocks

Q: The loosening of government regulation and control of financial institutions is called _______________________.

Q: Which of the following stocks is (are) an income stock(s)? A. Dow Chemicals B. Starbucks C. Microsoft D. None of the above

Q: Companies such as Merrill Lynch and Sears which offered some but not all banking services in the 1980s were called _______________________.

Q: Parcel Corporation is expected to pay a dividend of $5 per share next year, and the dividends pay out ratio is 50%. If the dividends are expected to grow at a constant rate of 8% forever and the required rate of return on the stock is 13%, calculate the present value of the growth opportunity. A. $100 B. $76.92 C. $23.08 D. None of the above

Q: The _______________________ of a bank is a traditional service where the bank manages the financial affairs and property of individuals (and in some cases businesses).

Q: Summer Co. is expected to pay a dividend or $4.00 per share out of earnings of $7.50 per share. If the required rate of return on the stock is 15% and dividends are growing at a current rate of 10% per year, calculate the present value of the growth opportunity for the stock (PVGO). A. $80 B. $30 C. $50 D. $26

Q: _______________________ is a service provided by banks where the bank lends money to individuals for the purchase of durable and other goods.

Q: A high proportion of the value of a growth stock comes from: A. Past dividend payments B. Past earnings C. PVGO (Present Value of the Growth Opportunities) D. Both A and B

Q: A(n) _______________________ is a traditional service which permits a depositor to write a draft in payment for goods and services.

Q: Generally high growth stocks pay: A. Low or no dividends B. High dividends C. Erratic dividends D. Both A and C

Q: _______________________ refers to when a financial institution trades one form of currency for another. An example of this would be when the bank trades dollars for yen for a fee.

Q: Which of the following formulas regarding earnings to price ratio is true: A. EPS/Po = r[1 + (PVGO/Po] B. EPS/Po = r[1 - (PVGO/Po)] C. EPS/Po = [r + (PVGO/Po)] D. EPS/Po = [r + (1 + (PVGO/Po)]/r

Q: The fact that financial institutions make loans based on confidential information is the _______________________ theory of banking.

Q: Company X has a P/E ratio of 10 and a stock price of $50 per share. Calculate earnings per share of the company. A. $6 per share B. $10 per share C. $0.20 per share D. $5 per share

Q: _______________________ is a traditional service provided by banks in which the banks store the valuables of their customers and certify their true value.

Q: The growth rate in dividends is a function of two ratios. They are: A. ROA and ROE. B. Dividend yield and growth rate in dividends. C. ROE and the Retention Ratio. D. Book value per share and EPS.

Q: T F 31. Under the terms of the Bank Merger Act each federal agency must give top priority to the competitive effects of a proposed merger.

Q: Lake Co. has paid a dividend $3 per share out of earnings of $5 per share. If the book value per share is $40, what is the expected growth rate in dividends? A. 7.5% B. 8% C. 12.5% D. 5%

Q: T F 37. A bank expects to lose its "hot money" liabilities, according to the textbook.

Q: River Co. has paid a dividend $2 per share out of earnings of $4 per share. If the book value per share is $25 and is currently selling for $40 per share, calculate the required rate of return on the stock. A. 15.2% B. 7.2% C. 14.7% D. 13.4%

Q: T F 30. A proposed merger between two or more banks must be ratified by the board of directors of each bank involved and by the management of each of the banks and then the merger can proceed once regulators' approval is received.

Q: Seven-Seas Co. has paid a dividend $3 per share out of earnings of $5 per share. If the book value per share is $40 and the market price is 52.50 per share, calculate the required rate of return on the stock. A. 12% B. 11% C. 5% D. 6%

Q: T F 36. A financial institution's liquidity gap represents the difference between its sources and uses of liquid funds.

Q: Ocean Co. has paid a dividend $2 per share out of earnings of $4 per share. If the book value per share is $25, what is the expected growth rate in dividends (g)? A. 16% B. 12% C. 8% D. 4%

Q: T F 29. According to the textbook the financial success of a bank merger depends heavily upon the comparative dollar amounts of earnings reported by the two banking organizations and their relative price-earnings ratios.

Q: R&D Technology Corporation has just paid a dividend of $0.50 per share. The dividends are expected to grow at 24% per year for the next two years and at 8% per year thereafter. If the required rate of return in the stock is 16% (APR), calculate the current value of the stock. A. $1.11 B. $7.71 C. $8.82 D. None of the above

Q: T F 35. Borrowed liquidity (liability) management is less risky for a financial institution than is asset conversion.

Q: The In-Tech Co. has just paid a dividend of $1 per share. The dividends are expected to grow at 25% per year for the next three years and at the rate of 5% per year thereafter. If the required rate of return on the stock is 18%(APR), what is the current value of the stock? A. $12.97 B. $11.93 C. $15.20 D. None of the above

Q: T F 28. In recent years in the United States bank merger premiums have commonly ranged from 150 to 250 percent.

Q: Otobai Motor Company is currently paying a dividend of $1.40 per year. The dividends are expected to grow at a rate of 18% for the next three years and then a constant rate of 5% thereafter. What is the expected dividend per share in year 5? A. $2.35 B. $2.54 C. $2.91 D. $1.50

Q: T F 34. One principle of sound bank liquidity management is to be sure to sell first those assets with the least profit potential.

Q: Michigan Co. is currently paying a dividend of $2.00 per share. The dividends are expected to grow at 20% per year for the next four years and then grow 6% per year thereafter. Calculate the expected dividend in year 5. A. $4.15 B. $2.95 C. $4.40 D. $3.81

Q: T F 27. If a bank with a higher stock-price-to-earnings ratio acquires a bank with a lower price-earnings ratio, earnings per share of the combined organization will increase even if combined earnings fall after the merger.

Q: MJ Co. pays out 60% of its earnings as dividends. Its return on equity is 15%. What is the stable dividend growth rate for the firm? A. 9% B. 5% C. 6% D. 15%

Q: T F 33. Asset conversion is considered to be a costless approach to liquidity management.

Q: Dividend growth rate for a stable firm can be estimated as: A. Plow back rate/the return on equity (ROE) B. Plow back rate * the return on equity (ROE) C. Plow back rate + the return on equity (ROE) D. Plow back rate - the return on equity (ROE)

Q: T F 26. In recent years banking has ranked in the top five of all U.S. industries in the number of reported merger transactions.

Q: The expected rate of return or the cost of equity capital is estimated as follows: A. Dividend yield - expected rate of growth in dividends B. Dividend yield + expected rate of growth in dividends C. Dividend yield/expected rate of growth in dividends D. (Dividend yield) (expected rate of growth in dividends)

Q: T F 32. Liquid assets generally have a stable price but are not necessarily reversible.

Q: World-Tour Co. has just now paid a dividend of $2.83 per share (D0); the dividends are expected to grow at a constant rate of 6% per year forever. If the required rate of return on the stock is 16%, what is the current value on stock, after paying the dividend? A. $30 B. $56 C. $70 D. $48

Q: When a merger takes place some banks have been asked to themselves of some of their branches. Many of these are sold to third parties.

Q: Will Co. is expected to pay a dividend of $2 per share at the end of year -1(D1) and the dividends are expected to grow at a constant rate of 4% forever. If the current price of the stock is $20 per share calculate the expected return or the cost of equity capital for the firm. A. 10% B. 4% C. 14% D. None of the above.

Q: T F 31. Asset liquidity management (or asset conversion) involves storing liquidity in assets, such as cash and marketable securities.

Q: The constant dividend growth formula P0 = Div1/(r - g) assumes: I) the dividends are growing at a constant rate g forever. II) r > g III) g is never negative. A. I only B. II only C. I and II only D. III only

Q: T F 60. An ETC is a device which aids customers in selling goods abroad.

Q: Casino Inc. is expected to pay a dividend of $3 per share at the end of year-1 (D1) and these dividends are expected to grow at a constant rate of 6% per year forever. If the required rate of return on the stock is 18%, what is current value of the stock today? A. $25 B. $50 C. $100 D. $54

Q: Deluxe Company expects to pay a dividend of $2 per share at the end of year-1, $3 per share at the end of year-2 and then be sold for $32 per share. If the required rate on the stock is 15%, what is the current value of the stock? A. $28.20 B. $32.17 C. $32.00 D. None of the given answers

Q: T F 59. China is an attractive market for banks because there is limited domestic competition and a general lack of expertise in banking.

Q: CK Company stockholders expect to receive a year-end dividend of $5 per share and then be sold for $115 dollars per share. If the required rate of return for the stock is 20%, what is the current value of the stock? A. $100 B. $122 C. $132 D. $110

Q: T F 29. Liquid assets must have a reasonably stable price so that the market is deep enough to absorb the sale without a significant loss of value.

Q: The value of a common stock today depends on: A. Number of shares outstanding and the number of shareholders B. The expected future dividends and the discount rate C. The Wall Street analysts D. Present value of the future earnings per share

Q: T F 58. The currency swap market is in decline following the introduction of the euro.

Q: Super Computer Company's stock is selling for $100 per share today. It is expected that this stock will pay a dividend of 6 dollars per share, and then be sold for $114 per share at the end of one year. Calculate the expected rate of return for the shareholders. A. 20% B. 15% C. 10% D. 25%

Q: In which of the following exchanges a computer acts as the auctioneer: I) New York Stock Exchange, II) London Stock Exchange, III) Tokyo Stock Exchange IV) Frankfurt Stock Exchange A. I, II, III, and IV B. I, III, and IV only C. I, II, and III only D. II, III, and IV only

Q: T F 57. Internet banks are not allowed in some countries such as Japan.

Q: T F 67. Research indicates that at least half of all households and small businesses hold their primary checking account at a depository institution situated within 3 miles of their location.

Q: In which of the following stock exchange specialists act as the auctioneers: A. New York Stock Exchange B. London Stock Exchange C. Tokyo Stock Exchange D. Frankfurt Stock Exchange

Q: T F 56. The top trading firms in the global currency markets are all banks.

Q: The following is an example of a dealer market: A. New York Stock Exchange B. London Stock Exchange C. Tokyo Stock Exchange D. Nasdaq

Q: T F 66. Urban markets are more responsive to deposit interest rates and fees than rural markets.

Q: The following are auction markets except: A. New York Stock Exchange B. London Stock Exchange C. Tokyo Stock Exchange D. Nasdaq

Q: The exchange-traded fund (EFT) that tracks the Nasdaq 100 index is called: A. SPDR B. DIAMONDS C. QQQQ D. None of the above

Q: T F 55. One way to determine the soundness of an international loan is to use the Delphi method which uses the consensus opinion of a panel of experts to develop a measure of a country's risk exposure.

Q: 7. If the Wall Street Journal Quotation for a company has the following values close: 55.14; Net chg: = + 1.04; then the closing price for the stock for the previous trading day was? A. $56.18 B. $54.10 C. $55.66 D. None of the above.

Q: T F 65. The depository institutions which tend to have the highest deposit yields are credit unions.

Q: The dividend yield reported as Yld. % in The Wall Street Journal quotation is calculated as follows: A. (dividends/hi) B. (dividends/lo) C. (dividends/close) D. None of the above

Q: T F 54. A time draft is a payment for purchase of goods and services across national borders which is payable upon presentation to the bank.

Q: If the Volume is reported in 100s as 292,059 in the Wall Street Journal quotation, then the trading volume for that day of trading is: A. 292,059 shares B. 2,920,590 shares C. 29,205,900 shares D. 292,059,000 shares

Q: T F 64. There are still a number of existing problems with online bill-paying services which has limited the growth.

Q: The following are foreign companies that are traded on the New York Stock Exchange: I) Toyota, II) Brasil Telecom, III) Nokia, IV) Endesa, V) General Electric A. I, II and III only B. I,II, III and IV only C. I,II,III and V only D. All of the given companies are foreign companies

Q: T F 53. A sight draft is a payment for purchase of goods and services across national borders which is payable only on a future date.

Q: Assume General Electric (GE) has about 10.3 billion shares outstanding and the stock price is $37.10. Also assume the P/E ratio is about 18.3. Calculate the market capitalization for GE. (Approximately) A. $679 billion B. $188 billion C. $382 billion D. None of the above

Q: T F 52. In a foreign currency swap a customer who needs to borrow a foreign currency receives the domestic currency today and swaps it back for the foreign currency just in time to repay the loan in the foreign currency.

Q: The major secondary market for GE shares is: A. London Stock Exchange B. New York Stock Exchange C. Nasdaq D. none of the above

Q: T F 63. The total dollar value of checks paid in the United States has grown modestly in recent years.

Q: Student: ___________________________________________________________________________

Q: T F 51. A foreign currency swap does not fully hedge the borrower against exchange risk.