NOTE: Your answers to the following questions should be in your own words. The expectation is that students will write enough to cover the topic sufficiently. A single phrase or sentence is not sufficient to cover the topic. A paragraph or more should include sufficient information to cover the topic. Write professionally, using complete sentences and correct grammar.

 

1. What is the overall role/purpose of the stock market? How does the stock market affect the economy, investors, and corporations?

 

2. Discuss the essential characteristics of common stock.

3. Compare and contrast the Dow Jones Industrial Average and the S & P 500.

4. Describe the Theory of Efficient Markets. What is the primary notion of the Theory of Efficient Markets?

5. Explain why being a residual claimant makes stock ownership risky.

6. Do individual shareholders have an effective say in corporate governance matters?

7. Consider the following information on the stock market in a small economy.

 

Company	Shares Outstanding	Price, beginning of year	Price, end of year
1	100	$100	$94
2	1,000	$20	$25
3	10,000	$3	$6

 

a. Compute a price-weighted stock price index for the beginning of the year and the end of the year. What is the percentage change?

 

b. Compute a value-weighted stock price index for the beginning of the year and the end of the year. What is the percentage change?

 

8. What are the advantages of holding stock in a company versus holding bonds issued by the same company?

9. Discuss the flaw(s) of the dividend discount model.