Question 1

D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stock's expected dividend yield for the coming year?

Accepted Answer

A) 4.42% 
B) 4.66% 
C) 4.89% 
D) 5.13% 
E) 5.39% 
A) 4.42% 
B) 4.66% 
C) 4.89% 
D) 5.13% 
E) 5.39% B

Question 2

Classified stock differentiates various classes of common stock, and using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.

Accepted Answer

A) True 
 B)False  True

Question 3

Savickas Petroleum's stock has a required return of 12%, and the stock sells for $40 per share.The firm just paid a dividend of $1.00, and the dividend is expected to grow by 30% per year for the next 4 years, so D4 = $1.00(1.30)4 = $2.8561.After t = 4, the dividend is expected to grow at a constant rate of X% per year forever.What is the stock's expected constant growth rate after t = 4, i.e., what is X?

Accepted Answer

A) 5.17% 
B) 5.44% 
C) 5.72% 
D) 6.02% 
E) 6.34% 
A) 5.17% 
B) 5.44% 
C) 5.72% 
D) 6.02% 
E) 6.34% E

Question 4

Carter's preferred stock pays a dividend of $1.00 per quarter.If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?

Accepted Answer

A) 8.03% 
B) 8.24% 
C) 8.45% 
D) 8.67% 
E) 8.89% 
A) 8.03% 
B) 8.24% 
C) 8.45% 
D) 8.67% 
E) 8.89%

Question 5

a firm's stockholders are given the preemptive right, this means that stockholders have the right to call for a meeting to vote to replace the management.Without the preemptive right, dissident stockholders would have to seek a change in management through a proxy fight.

Accepted Answer

A) True 
 B)False

Question 6

D1 = $1.25, g (which is constant) = 4.7%, and P0 = $26.00, what is the stock's expected dividend yield for the coming year?

Accepted Answer

A) 4.12% 
B) 4.34% 
C) 4.57% 
D) 4.81% 
E) 5.05% 
A) 4.12% 
B) 4.34% 
C) 4.57% 
D) 4.81% 
E) 5.05%

Question 7

Agarwal Technologies was founded 10 years ago.It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend.Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter.Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below.Assuming a required return of 11.00%, what is your estimate of the stock's current value?

$\begin{array}{llllllll}
\text {year }&0&1&2&3&4&5&6\
\text { Growthrate } & \text { NA } & \text { NA } & \text { NA } & \text { NA } & 50.00 \% & 25.00 \% & 8.00 \% \
\text { Dividends } & \$ 0.000 & \$ 0.000 & \$ 0.000 & \$ 0.250 & \$ 0.375 & \$ 0.469 & \$ 0.506
\end{array}$

Accepted Answer

A) $ 9.94 
B) $10.19 
C) $10.45 
D) $10.72 
E) $10.99 
A) $ 9.94 
B) $10.19 
C) $10.45 
D) $10.72 
E) $10.99

Question 8

expected return on Natter Corporation's stock is 14%.The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share.Which of the following statements is CORRECT?

Accepted Answer

A) The stock's dividend yield is 7%. 
B) The stock's dividend yield is 8%. 
C) The current dividend per share is $4.00. 
D) The stock price is expected to be $54 a share one year from now. 
E) The stock price is expected to be $57 a share one year from now. 
A) The stock's dividend yield is 7%. 
B) The stock's dividend yield is 8%. 
C) The current dividend per share is $4.00. 
D) The stock price is expected to be $54 a share one year from now. 
E) The stock price is expected to be $57 a share one year from now.

Question 9

Francis Inc.'s stock has a required rate of return of 10.25%, and it sells for $57.50 per share.The dividend is expected to grow at a constant rate of 6.00% per year.What is the expected year-end dividend, D1?

Accepted Answer

A) $2.20 
B) $2.44 
C) $2.69 
D) $2.96 
E) $3.25 
A) $2.20 
B) $2.44 
C) $2.69 
D) $2.96 
E) $3.25

Question 10

a stock's market price exceeds its intrinsic value as seen by the marginal investor, then the investor will sell the stock until its price has fallen down to the level of the investor's estimate of the intrinsic value.

Accepted Answer

A) True 
 B)False

Question 11

Rebello's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share.What is its effective annual (not nominal) rate of return?

Accepted Answer

A) 6.62% 
B) 6.82% 
C) 7.03% 
D) 7.25% 
E) 7.47% 
A) 6.62% 
B) 6.82% 
C) 7.03% 
D) 7.25% 
E) 7.47%

Question 12

Nachman Industries just paid a dividend of D0 = $1.32.Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?

Accepted Answer

A) $41.59 
B) $42.65 
C) $43.75 
D) $44.87 
E) $45.99 
A) $41.59 
B) $42.65 
C) $43.75 
D) $44.87 
E) $45.99

Question 13

constant growth stocks are in equilibrium, have the same price, and have the same required rate of return.Which of the following statements is CORRECT?

Accepted Answer

A) The two stocks must have the same dividend per share. 
B) If one stock has a higher dividend yield, it must also have a lower dividend growth rate. 
C) If one stock has a higher dividend yield, it must also have a higher dividend growth rate. 
D) The two stocks must have the same dividend growth rate. 
E) The two stocks must have the same dividend yield. 
A) The two stocks must have the same dividend per share. 
B) If one stock has a higher dividend yield, it must also have a lower dividend growth rate. 
C) If one stock has a higher dividend yield, it must also have a higher dividend growth rate. 
D) The two stocks must have the same dividend growth rate. 
E) The two stocks must have the same dividend yield.

Question 14

Ackert Company's last dividend was $1.55.The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (rs) is 12.0%.What is the best estimate of the current stock price?

Accepted Answer

A) $37.05 
B) $38.16 
C) $39.30 
D) $40.48 
E) $41.70 
A) $37.05 
B) $38.16 
C) $39.30 
D) $40.48 
E) $41.70

Question 15

D1 = $1.50, g (which is constant) = 6.5%, and P0 = $56, what is the stock's expected capital gains yield for the coming year?

Accepted Answer

A) 6.50% 
B) 6.83% 
C) 7.17% 
D) 7.52% 
E) 7.90% 
A) 6.50% 
B) 6.83% 
C) 7.17% 
D) 7.52% 
E) 7.90%

Question 16

Church Inc.is presently enjoying relatively high growth because of a surge in the demand for its new product.Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0.The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%.What is the current price of the common stock?

Accepted Answer

A) $26.77 
B) $27.89 
C) $29.05 
D) $30.21 
E) $31.42 
A) $26.77 
B) $27.89 
C) $29.05 
D) $30.21 
E) $31.42

Question 17

stock just paid a dividend of D0 = $1.50.The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%.What is the current stock price?

Accepted Answer

A) $23.11 
B) $23.70 
C) $24.31 
D) $24.93 
E) $25.57 
A) $23.11 
B) $23.70 
C) $24.31 
D) $24.93 
E) $25.57

Question 18

Stocks A and B have the following data.The market risk premium is 6.0% and the risk-free rate is 6.4%.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Accepted Answer

A) Stock A must have a higher stock price than Stock B. 
B) Stock A must have a higher dividend yield than Stock B. 
C) Stock B's dividend yield equals its expected dividend growth rate. 
D) Stock B must have the higher required return. 
E) Stock B could have the higher expected return. 
A) Stock A must have a higher stock price than Stock B. 
B) Stock A must have a higher dividend yield than Stock B. 
C) Stock B's dividend yield equals its expected dividend growth rate. 
D) Stock B must have the higher required return. 
E) Stock B could have the higher expected return.

Question 19

Sorenson Corp.'s expected year-end dividend is D1 = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future.What is Sorenson's expected stock price in 7 years, i.e., what is ?

Accepted Answer

A) $37.52 
B) $39.40 
C) $41.37 
D) $43.44 
E) $45.61 
A) $37.52 
B) $39.40 
C) $41.37 
D) $43.44 
E) $45.61

Question 20

a stock's dividend is expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.

Accepted Answer

A) The expected return on the stock is 5% a year. 
B) The stock's dividend yield is 5%. 
C) The price of the stock is expected to decline in the future. 
D) The stock's required return must be equal to or less than 5%. 
E) The stock's price one year from now is expected to be 5% above the current price. 
A) The expected return on the stock is 5% a year. 
B) The stock's dividend yield is 5%. 
C) The price of the stock is expected to decline in the future. 
D) The stock's required return must be equal to or less than 5%. 
E) The stock's price one year from now is expected to be 5% above the current price.

D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stock's expected dividend yield for the coming year?

Classified stock differentiates various classes of common stock, and using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.

Carter's preferred stock pays a dividend of $1.00 per quarter.If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?

a firm's stockholders are given the preemptive right, this means that stockholders have the right to call for a meeting to vote to replace the management.Without the preemptive right, dissident stockholders would have to seek a change in management through a proxy fight.

D1 = $1.25, g (which is constant) = 4.7%, and P0 = $26.00, what is the stock's expected dividend yield for the coming year?

expected return on Natter Corporation's stock is 14%.The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share.Which of the following statements is CORRECT?

Francis Inc.'s stock has a required rate of return of 10.25%, and it sells for $57.50 per share.The dividend is expected to grow at a constant rate of 6.00% per year.What is the expected year-end dividend, D1?

a stock's market price exceeds its intrinsic value as seen by the marginal investor, then the investor will sell the stock until its price has fallen down to the level of the investor's estimate of the intrinsic value.

Rebello's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share.What is its effective annual (not nominal) rate of return?

constant growth stocks are in equilibrium, have the same price, and have the same required rate of return.Which of the following statements is CORRECT?

Ackert Company's last dividend was $1.55.The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (rs) is 12.0%.What is the best estimate of the current stock price?

D1 = $1.50, g (which is constant) = 6.5%, and P0 = $56, what is the stock's expected capital gains yield for the coming year?

stock just paid a dividend of D0 = $1.50.The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%.What is the current stock price?

Stocks A and B have the following data.The market risk premium is 6.0% and the risk-free rate is 6.4%.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Sorenson Corp.'s expected year-end dividend is D1 = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future.What is Sorenson's expected stock price in 7 years, i.e., what is ?

a stock's dividend is expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.

Overview

Statements, CF, Taxes

Financial Analysis

Time Value of Money

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Risk and Return

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Exam 7: Stocks

D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stock's expected dividend yield for the coming year?

Classified stock differentiates various classes of common stock, and using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.

Carter's preferred stock pays a dividend of $1.00 per quarter.If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?

a firm's stockholders are given the preemptive right, this means that stockholders have the right to call for a meeting to vote to replace the management.Without the preemptive right, dissident stockholders would have to seek a change in management through a proxy fight.

D1 = $1.25, g (which is constant) = 4.7%, and P0 = $26.00, what is the stock's expected dividend yield for the coming year?

expected return on Natter Corporation's stock is 14%.The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share.Which of the following statements is CORRECT?

Francis Inc.'s stock has a required rate of return of 10.25%, and it sells for $57.50 per share.The dividend is expected to grow at a constant rate of 6.00% per year.What is the expected year-end dividend, D1?

a stock's market price exceeds its intrinsic value as seen by the marginal investor, then the investor will sell the stock until its price has fallen down to the level of the investor's estimate of the intrinsic value.

Rebello's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share.What is its effective annual (not nominal) rate of return?

constant growth stocks are in equilibrium, have the same price, and have the same required rate of return.Which of the following statements is CORRECT?

Ackert Company's last dividend was $1.55.The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (rs) is 12.0%.What is the best estimate of the current stock price?

D1 = $1.50, g (which is constant) = 6.5%, and P0 = $56, what is the stock's expected capital gains yield for the coming year?

stock just paid a dividend of D0 = $1.50.The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%.What is the current stock price?

Stocks A and B have the following data.The market risk premium is 6.0% and the risk-free rate is 6.4%.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Sorenson Corp.'s expected year-end dividend is D1 = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future.What is Sorenson's expected stock price in 7 years, i.e., what is ?

a stock's dividend is expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.

Overview

Statements, CF, Taxes

Financial Analysis

Time Value of Money

Bonds

Risk and Return

Financial Options

Cost of Capital

Capital Budgeting

Cash Flow and Risk

Forecasting

Valuation, Governanc

Dividends

CAP Structure

Working Capital

Multinational

Filters