Question 1

a new issue of stock is brought to market, it is the marginal investor who determines the price at which the stock will trade.

Accepted Answer

A) True 
 B)False

Question 2

Goode Inc.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share.Goode's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend, D0?

Accepted Answer

A) $0.95 
B) $1.05 
C) $1.16 
D) $1.27 
E) $1.40 
A) $0.95 
B) $1.05 
C) $1.16 
D) $1.27 
E) $1.40

Question 3

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Accepted Answer

A) Stock X has a higher dividend yield than Stock Y. 
B) Stock Y has a higher dividend yield than Stock X. 
C) One year from now, Stock X's price is expected to be higher than Stock Y's price. 
D) Stock X has the higher expected year-end dividend. 
E) Stock Y has a higher capital gains yield. 
A) Stock X has a higher dividend yield than Stock Y. 
B) Stock Y has a higher dividend yield than Stock X. 
C) One year from now, Stock X's price is expected to be higher than Stock Y's price. 
D) Stock X has the higher expected year-end dividend. 
E) Stock Y has a higher capital gains yield.

Question 4

Francis Company is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future.The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%.What is the company's current stock price?

Accepted Answer

A) $28.90 
B) $29.62 
C) $30.36 
D) $31.12 
E) $31.90 
A) $28.90 
B) $29.62 
C) $30.36 
D) $31.12 
E) $31.90

Question 5

Which of the following statements is CORRECT?

Accepted Answer

A) If a company has two classes of common stock, Class A and Class B, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights. 
B) The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company. 
C) The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock. 
D) The stock valuation model, P0 = D1/(rs - g), cannot be used for firms that have negative growth rates. 
E) The stock valuation model, P0 = D1/(rs - g), can be used only for firms whose growth rates exceed their required returns. 
A) If a company has two classes of common stock, Class A and Class B, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights. 
B) The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company. 
C) The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock. 
D) The stock valuation model, P0 = D1/(rs - g), cannot be used for firms that have negative growth rates. 
E) The stock valuation model, P0 = D1/(rs - g), can be used only for firms whose growth rates exceed their required returns.

Question 6

boss, Sally Maloney, treasurer of Fred Clark Enterprises (FCE)Sally told you that the growth rates in the template were just put in as a trial, and that you must replace them with the analysts' forecasted rates to get the correct forecasted dividends and then the estimated TV.She also notes that the estimated value for rs, at the top of the template, is also just a guess, and you must replace it with a value that will cause the Calculated Price shown at the bottom to equal the Actual Market Price.She suggests that, after you have put in the correct dividends, you can manually calculate the price, using a series of guesses as to the Estimated rs.The value of rs that causes the calculated price to equal the actual price is the correct one.She notes, though, that this trial-and-error process would be quite tedious, and that the correct rs could be found much faster with a simple Excel model, especially if you use Goal Seek.What is the value of rs?

Accepted Answer

A) 11.84% 
B) 12.21% 
C) 12.58% 
D) 12.97% 
E) 13.36% 
A) 11.84% 
B) 12.21% 
C) 12.58% 
D) 12.97% 
E) 13.36%

Question 7

Whited Inc.'s stock currently sells for $35.25 per share.The dividend is projected to increase at a constant rate of 4.75% per year.The required rate of return on the stock, rs, is 11.50%.What is the stock's expected price 5 years from now?

Accepted Answer

A) $40.17 
B) $41.20 
C) $42.26 
D) $43.34 
E) $44.46 
A) $40.17 
B) $41.20 
C) $42.26 
D) $43.34 
E) $44.46

Question 8

increase in a firm's expected growth rate would cause its required rate of return to

Accepted Answer

A) increase. 
B) decrease. 
C) fluctuate less than before. 
D) fluctuate more than before. 
E) possibly increase, possibly decrease, or possibly remain constant. 
A) increase. 
B) decrease. 
C) fluctuate less than before. 
D) fluctuate more than before. 
E) possibly increase, possibly decrease, or possibly remain constant.

Question 9

Which of the following statements is CORRECT?

Accepted Answer

A) A major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights. 
B) Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock. 
C) The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock. 
D) One of the disadvantages to a corporation of owning preferred stock is that 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income earned on bonds would be tax free. 
E) One of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer. 
A) A major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights. 
B) Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock. 
C) The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock. 
D) One of the disadvantages to a corporation of owning preferred stock is that 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income earned on bonds would be tax free. 
E) One of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer.

Question 10

markets are in equilibrium, which of the following conditions will exist?

Accepted Answer

A) Each stock's expected return should equal its realized return as seen by the marginal investor. 
B) Each stock's expected return should equal its required return as seen by the marginal investor. 
C) All stocks should have the same expected return as seen by the marginal investor. 
D) The expected and required returns on stocks and bonds should be equal. 
E) All stocks should have the same realized return during the coming year. 
A) Each stock's expected return should equal its realized return as seen by the marginal investor. 
B) Each stock's expected return should equal its required return as seen by the marginal investor. 
C) All stocks should have the same expected return as seen by the marginal investor. 
D) The expected and required returns on stocks and bonds should be equal. 
E) All stocks should have the same realized return during the coming year.

Question 11

Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future.The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%.What is the company's current stock price, P0?

Accepted Answer

A) $18.62 
B) $19.08 
C) $19.56 
D) $20.05 
E) $20.55 
A) $18.62 
B) $19.08 
C) $19.56 
D) $20.05 
E) $20.55

Question 12

D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock's expected total return for the coming year?

Accepted Answer

A) 7.54% 
B) 7.73% 
C) 7.93% 
D) 8.13% 
E) 8.34% 
A) 7.54% 
B) 7.73% 
C) 7.93% 
D) 8.13% 
E) 8.34%

Question 13

Reddick Enterprises' stock currently sells for $35.50 per share.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock, rs, is 9.00%.What is the stock's expected price 3 years from today?

Accepted Answer

A) $37.86 
B) $38.83 
C) $39.83 
D) $40.85 
E) $41.69 
A) $37.86 
B) $38.83 
C) $39.83 
D) $40.85 
E) $41.69

Question 14

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Accepted Answer

A) Stock Y pays a higher dividend per share than Stock X. 
B) Stock X pays a higher dividend per share than Stock Y. 
C) One year from now, Stock X should have the higher price. 
D) Stock Y has a lower expected growth rate than Stock X. 
E) Stock Y has the higher expected capital gains yield. 
A) Stock Y pays a higher dividend per share than Stock X. 
B) Stock X pays a higher dividend per share than Stock Y. 
C) One year from now, Stock X should have the higher price. 
D) Stock Y has a lower expected growth rate than Stock X. 
E) Stock Y has the higher expected capital gains yield.

Question 15

Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Accepted Answer

A) Stock A's expected dividend at t = 1 is only half that of Stock B. 
B) Stock A has a higher dividend yield than Stock B. 
C) Currently the two stocks have the same price, but over time Stock B's price will pass that of A. 
D) Since Stock A's growth rate is twice that of Stock B, Stock A's future dividends will always be twice as high as Stock B's. 
E) The two stocks should not sell at the same price.If their prices are equal, then a disequilibrium must exist. 
A) Stock A's expected dividend at t = 1 is only half that of Stock B. 
B) Stock A has a higher dividend yield than Stock B. 
C) Currently the two stocks have the same price, but over time Stock B's price will pass that of A. 
D) Since Stock A's growth rate is twice that of Stock B, Stock A's future dividends will always be twice as high as Stock B's. 
E) The two stocks should not sell at the same price.If their prices are equal, then a disequilibrium must exist.

Question 16

preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm.This right helps protect current stockholders against both dilution of control and dilution of value.

Accepted Answer

A) True 
 B)False

Question 17

a stock to be in equilibrium, that is, for there to be no long-term pressure for its price to depart from its current level, then

Accepted Answer

A) the expected future return must be less than the most recent past realized return. 
B) The past realized return must be equal to the expected return during the same period. 
C) the required return must equal the realized return in all periods. 
D) the expected return must be equal to both the required future return and the past realized return. 
E) the expected future returns must be equal to the required return. 
A) the expected future return must be less than the most recent past realized return. 
B) The past realized return must be equal to the expected return during the same period. 
C) the required return must equal the realized return in all periods. 
D) the expected return must be equal to both the required future return and the past realized return. 
E) the expected future returns must be equal to the required return.

Question 18

in the opinion of a given investor a stock's expected return exceeds its required return, this suggests that the investor thinks

Accepted Answer

A) the stock is experiencing supernormal growth. 
B) the stock should be sold. 
C) the stock is a good buy. 
D) management is probably not trying to maximize the price per share. 
E) dividends are not likely to be declared. 
A) the stock is experiencing supernormal growth. 
B) the stock should be sold. 
C) the stock is a good buy. 
D) management is probably not trying to maximize the price per share. 
E) dividends are not likely to be declared.

Question 19

Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year The stock sells for $32.50 per share, and its required rate of return is 10.5%.The dividend is expected to grow at some constant rate, g, forever.What is the equilibrium expected growth rate?

Accepted Answer

A) 6.01% 
B) 6.17% 
C) 6.33% 
D) 6.49% 
E) 6.65% 
A) 6.01% 
B) 6.17% 
C) 6.33% 
D) 6.49% 
E) 6.65%

Question 20

an investor's perspective, a firm's preferred stock is generally considered to be less risky than its common stock but more risky than its bonds.However, from a corporate issuer's standpoint, these risk relationships are reversed: Bonds are the most risky for the firm, preferred is next, and common is least risky.

Accepted Answer

A) True 
 B)False

a new issue of stock is brought to market, it is the marginal investor who determines the price at which the stock will trade.

Goode Inc.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share.Goode's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend, D0?

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Whited Inc.'s stock currently sells for $35.25 per share.The dividend is projected to increase at a constant rate of 4.75% per year.The required rate of return on the stock, rs, is 11.50%.What is the stock's expected price 5 years from now?

increase in a firm's expected growth rate would cause its required rate of return to

Which of the following statements is CORRECT?

markets are in equilibrium, which of the following conditions will exist?

Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future.The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%.What is the company's current stock price, P0?

D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock's expected total return for the coming year?

Reddick Enterprises' stock currently sells for $35.50 per share.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock, rs, is 9.00%.What is the stock's expected price 3 years from today?

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm.This right helps protect current stockholders against both dilution of control and dilution of value.

a stock to be in equilibrium, that is, for there to be no long-term pressure for its price to depart from its current level, then

in the opinion of a given investor a stock's expected return exceeds its required return, this suggests that the investor thinks

Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year The stock sells for $32.50 per share, and its required rate of return is 10.5%.The dividend is expected to grow at some constant rate, g, forever.What is the equilibrium expected growth rate?

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

Exam 7: Stocks

a new issue of stock is brought to market, it is the marginal investor who determines the price at which the stock will trade.

Goode Inc.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share.Goode's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend, D0?

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Whited Inc.'s stock currently sells for $35.25 per share.The dividend is projected to increase at a constant rate of 4.75% per year.The required rate of return on the stock, rs, is 11.50%.What is the stock's expected price 5 years from now?

increase in a firm's expected growth rate would cause its required rate of return to

Which of the following statements is CORRECT?

markets are in equilibrium, which of the following conditions will exist?

Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future.The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%.What is the company's current stock price, P0?

D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock's expected total return for the coming year?

Reddick Enterprises' stock currently sells for $35.50 per share.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock, rs, is 9.00%.What is the stock's expected price 3 years from today?

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm.This right helps protect current stockholders against both dilution of control and dilution of value.

a stock to be in equilibrium, that is, for there to be no long-term pressure for its price to depart from its current level, then

in the opinion of a given investor a stock's expected return exceeds its required return, this suggests that the investor thinks

Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year The stock sells for $32.50 per share, and its required rate of return is 10.5%.The dividend is expected to grow at some constant rate, g, forever.What is the equilibrium expected growth rate?

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