Practice Quiz Chapter 71. Stockholders are residual claimants, meaning that theya. have the first priority claim on all of a company's assets.b. are liable for all of a company's debts.c. will never share in a company's profits.d. receive the remaining cash flow after all other claims are paid.2. In the one-period valuation model, an increase in the required return on investments in equitya. increases the expected sales price of a stock.b. increases the current price of a stock.c. reduces the expected sales price of a stock.d. reduces the current price of a stock.3. In the Gordon Growth Model, the growth rate is assumed to be _________ the required return on equity.a. greater than b. equal toc. less than d. proportional to4. A stock's price will fall if there isa. a decrease in perceived risk.b. an increase in the required rate of return.c. an increase in the future sales price.d. current dividends are high.5. If during the past decade the average rate of monetary growth has been 5%, and the average inflationrate has been 5%, everything else held constant, when the Federal Reserve announces that the new rate of monetary growth will be 10%, the adaptive expectation forecast of the inflation rate isa. 5%. b. between 5 and 10%.c. 10%. d. more than 10%.6. An expectation may fail to be rational ifa. relevant information was not available at the time the forecast is made.b. relevant information is available but ignored at the time the forecast is made.c. information changes after the forecast is made.d. information was available to insiders only.7. You have observed that the forecasts of an investment advisor consistently outperform the other reported forecasts. The efficient markets hypothesis says that future forecasts by this advisor a. may or may not be better than the other forecasts. Past performance is no guarantee of the future.b. will always be the best of the group.c. will definitely be worse in the future. What goes up must come down.d. will be worse in the near future, but improve over time.8. The advantage of a "buy-and-hold" strategy is thata. net profits will tend to be higher because there will be fewer brokerage commissions.b. losses will eventually be eliminated.c. the longer a stock is held, the higher will be its price.d. profits are guaranteed.9. ____________ means people are more unhappy when they suffer losses than they are happy when they achieve gains.a. Loss fundamentalsb. Loss aversionc. Loss leaderd. Loss cycle10. When Happy Feet Corporation announces that their fourth quarter earnings are up 10%, their stock price falls. This is consistent with the efficient markets hypothesisa. if earnings were not as high as expected.b. if earnings were not as low as expected.c. if a merger is anticipated.d. the company just invented a new bunion product.Answers to chapter 7 practice quiz.1. D2. D3. C4. B5. A6. B7. A8. A9. B10.
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