Question 1

If the dividend yield for year one is expected to be 5 percent based on the current price of $25, what will the year four dividend be if dividends grow at a constant 6 percent?

Accepted Answer

A) $1.33 
B) $1.49 
C) $1.58 
D) $1.67 .05 x 25 = 1.25 = Div1 
A) $1.33 
B) $1.49 
C) $1.58 
D) $1.67 .05 x 25 = 1.25 = Div1 B

Question 2

How many round lots were traded in a specific stock on a day in which 467,800 shares changed hands?

Accepted Answer

A) 467.8 round lots 
B) 4,678 round lots 
C) 467,800 round lots 
D) Price must be known to determine round lots 
A) 467.8 round lots 
B) 4,678 round lots 
C) 467,800 round lots 
D) Price must be known to determine round lots B

Question 3

Which of the following is least assured for firms that plowback a portion of earnings into the firm?

Accepted Answer

A) Growth in earnings per share 
B) Growth in dividends per share 
C) Growth in book value of equity 
D) Growth in stock price 
A) Growth in earnings per share 
B) Growth in dividends per share 
C) Growth in book value of equity 
D) Growth in stock price D

Question 4

If a stock currently sells for $40.00 and has annual earnings per share of $3.00, the P/E multiple is:

Accepted Answer

A) 0.075 
B) 7.0 
C) 13.33 
D) Not shown above. 
A) 0.075 
B) 7.0 
C) 13.33 
D) Not shown above.

Question 5

Which of the following is a characteristic of secondary markets for common stock?

Accepted Answer

A) Only low-priced shares are traded in these markets 
B) Only high-risk shares are traded in these markets 
C) Secondary markets are where corporations borrow funds 
D) Secondary-market trades do not provide funds for corporations whose stock is traded 
A) Only low-priced shares are traded in these markets 
B) Only high-risk shares are traded in these markets 
C) Secondary markets are where corporations borrow funds 
D) Secondary-market trades do not provide funds for corporations whose stock is traded

Question 6

Which group of investors is capable of earning consistent, superior profits if financial markets are strong-form efficient?

Accepted Answer

A) Only technical analysts will be able to profit 
B) Only fundamental analysts will be able to profit 
C) Only inside traders will be able to profit 
D) No one will be capable of sustained, superior profits 
A) Only technical analysts will be able to profit 
B) Only fundamental analysts will be able to profit 
C) Only inside traders will be able to profit 
D) No one will be capable of sustained, superior profits

Question 7

A firm's liquidation value is the amount:

Accepted Answer

A) Necessary to repurchase all shares of common stock 
B) Realized from selling all assets and repaying debts 
C) A purchaser would pay for the firm in bankruptcy 
D) Equal to the book value of equity 
A) Necessary to repurchase all shares of common stock 
B) Realized from selling all assets and repaying debts 
C) A purchaser would pay for the firm in bankruptcy 
D) Equal to the book value of equity

Question 8

Fundamental analysts attempt to get rich by identifying patterns in stock prices.

Accepted Answer

A) True 
 B)False

Question 9

Technical analysts have no effect upon the efficiency of the stock market.

Accepted Answer

A) True 
 B)False

Question 10

Common stock can be valued using the perpetuity valuation formula if the:

Accepted Answer

A) Discount rate is expected to remain constant 
B) Dividends are not expected to grow 
C) Growth rate in dividends is not constant 
D) Investor does not intend to sell the stock 
A) Discount rate is expected to remain constant 
B) Dividends are not expected to grow 
C) Growth rate in dividends is not constant 
D) Investor does not intend to sell the stock

Question 11

Holding risk constant, an increase in dividend yield will tend to decrease a firm's rate of growth.

Accepted Answer

A) True 
 B)False

Question 12

Cash dividends are offered to shareholders in lieu of increasing the stock's price.

Accepted Answer

A) True 
 B)False

Question 13

How much of a stock's $30 price is reflected in PVGO if it expects to earn $4 per share, has an expected dividend of $2.50, and a required return of 20 percent?

Accepted Answer

A) $0 
B) $6.00 
C) $8.00 
D) $10.00 P = $4/.2 if all earnings paid as dividends 
A) $0 
B) $6.00 
C) $8.00 
D) $10.00 P = $4/.2 if all earnings paid as dividends

Question 14

How much should you pay for a share of stock that offers a constant growth rate of 10%, requires a 16% rate of return, and is expected to sell for $50 one year from now?

Accepted Answer

A) $42.00 
B) $45.00 
C) $45.45 
D) $47.00 Expected return = expected dividend yield
+ expected capital appreciation
Then:
)16 = .06 + expected capital appreciation
)10 = expected capital appreciation
And
PS1U1B11S1U1B0 = 110% of PS1U1B1oS1U1B0S1U1B1
S1U1B0$50.00 = 1.1PS1U1B1oS1U1B0S1U1B1 
A) $42.00 
B) $45.00 
C) $45.45 
D) $47.00 Expected return = expected dividend yield
+ expected capital appreciation
Then:
)16 = .06 + expected capital appreciation
)10 = expected capital appreciation
And
PS1U1B11S1U1B0 = 110% of PS1U1B1oS1U1B0S1U1B1
S1U1B0$50.00 = 1.1PS1U1B1oS1U1B0S1U1B1

Question 15

If it proves possible to make abnormal profits based on information regarding past stock prices, then the market:

Accepted Answer

A) Is weak-form efficient 
B) Is not weak-form efficient 
C) Is semi-strong-form efficient 
D) Is strong-form efficient 
A) Is weak-form efficient 
B) Is not weak-form efficient 
C) Is semi-strong-form efficient 
D) Is strong-form efficient

Question 16

Securities with the same expected risk should offer the same expected rate of return.

Accepted Answer

A) True 
 B)False

Question 17

The main purpose of a market-value balance sheet is to:

Accepted Answer

A) Show an inflated value of the firm 
B) Avoid the recording of certain liabilities 
C) Value assets and liabilities without GAAP restrictions 
D) Improve the credit rating of the firm 
A) Show an inflated value of the firm 
B) Avoid the recording of certain liabilities 
C) Value assets and liabilities without GAAP restrictions 
D) Improve the credit rating of the firm

Question 18

Develop a current stock value for a firm that is expected to have extraordinary growth of 25% for four years, after which it will face more competition and slip into a constant growth rate of 5%.Its required return is 14% and next year's dividend is expected to be $5.00

Accepted Answer

P_o = @#IMG-DLM& + @#IMG-DLM& = 4.39 + @#IMG-DLM& $8

Question 19

How much should you pay for a share of stock that offers a constant growth rate of 10 percent, requires a 16 percent rate of return, and is expected to sell for $50 one year from now?

Accepted Answer

A) $42.00 
B) $45.00 
C) $45.45 
D) $47.00 The easiest way to solve this problem is to realize:
Expected return = expected dividend yield + expected capital appreciation Then:
)16 = .06 + expected capital appreciation
)10 = expected capital appreciation And
P1 = 110% of Po
$50)00 = 1.1Po 
A) $42.00 
B) $45.00 
C) $45.45 
D) $47.00 The easiest way to solve this problem is to realize:
Expected return = expected dividend yield + expected capital appreciation Then:
)16 = .06 + expected capital appreciation
)10 = expected capital appreciation And
P1 = 110% of Po
$50)00 = 1.1Po

Question 20

Technical analysts are most likely to be successful in a market that is considered:

Accepted Answer

A) Semi-strong-form efficient 
B) Not to be strong-form efficient 
C) Not to be weak-form efficient 
D) To follow a random walk 
A) Semi-strong-form efficient 
B) Not to be strong-form efficient 
C) Not to be weak-form efficient 
D) To follow a random walk

Exam 7: Valuing Stocks

If the dividend yield for year one is expected to be 5 percent based on the current price of $25, what will the year four dividend be if dividends grow at a constant 6 percent?

How many round lots were traded in a specific stock on a day in which 467,800 shares changed hands?

Which of the following is least assured for firms that plowback a portion of earnings into the firm?

If a stock currently sells for $40.00 and has annual earnings per share of $3.00, the P/E multiple is:

Which of the following is a characteristic of secondary markets for common stock?

Which group of investors is capable of earning consistent, superior profits if financial markets are strong-form efficient?

A firm's liquidation value is the amount:

Fundamental analysts attempt to get rich by identifying patterns in stock prices.

Technical analysts have no effect upon the efficiency of the stock market.

Common stock can be valued using the perpetuity valuation formula if the:

Holding risk constant, an increase in dividend yield will tend to decrease a firm's rate of growth.

Cash dividends are offered to shareholders in lieu of increasing the stock's price.

How much of a stock's $30 price is reflected in PVGO if it expects to earn $4 per share, has an expected dividend of $2.50, and a required return of 20 percent?

How much should you pay for a share of stock that offers a constant growth rate of 10%, requires a 16% rate of return, and is expected to sell for $50 one year from now?

If it proves possible to make abnormal profits based on information regarding past stock prices, then the market:

Securities with the same expected risk should offer the same expected rate of return.

The main purpose of a market-value balance sheet is to:

Develop a current stock value for a firm that is expected to have extraordinary growth of 25% for four years, after which it will face more competition and slip into a constant growth rate of 5%.Its required return is 14% and next year's dividend is expected to be $5.00

How much should you pay for a share of stock that offers a constant growth rate of 10 percent, requires a 16 percent rate of return, and is expected to sell for $50 one year from now?

Technical analysts are most likely to be successful in a market that is considered:

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

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