Question 1

A firm has a return on equity of 20% and a dividend payout ratio of 30%.The firm's anticipated growth rate is _______.

Accepted Answer

A)  6% 
B)  10% 
C)  14% 
D)  20% 
E)  none of these 
A)  6% 
B)  10% 
C)  14% 
D)  20% 
E)  none of these

Question 2

Antiquated Products Corporation produces goods that are very mature in their product life cycles.Antiquated Products Corporation is expected to pay a dividend in year 1 of $1.00,a dividend of $0.90 in year 2,and a dividend of $0.85 in year 3.After year 3,dividends are expected to decline at a rate of 2% per year.An appropriate required rate of return for the stock is 8%.The stock should be worth ____.

Accepted Answer

A)  $8.49 
B)  $10.57 
C)  $20.00 
D)  $22.22 
E)  None of these is correct 
A)  $8.49 
B)  $10.57 
C)  $20.00 
D)  $22.22 
E)  None of these is correct

Question 3

Which of the following are key economic statistics that are used to describe the state of the macro economy?
I.Gross domestic product
II.The unemployment rate
III.Inflation
IV.Consumer sentiment
V.The budget deficit

Accepted Answer

A)  I,II,and V 
B)  I,III,and V 
C)  I,II,and III 
D)  I,II,III,and V 
E)  I,II,III,IV,and V 
A)  I,II,and V 
B)  I,III,and V 
C)  I,II,and III 
D)  I,II,III,and V 
E)  I,II,III,IV,and V

Question 4

Dividend discount models and P/E ratios are used by __________ to try to find mispriced securities.

Accepted Answer

A)  technical analysts 
B)  statistical analysts 
C)  fundamental analysts 
D)  dividend analysts 
E)  psychoanalysts 
A)  technical analysts 
B)  statistical analysts 
C)  fundamental analysts 
D)  dividend analysts 
E)  psychoanalysts

Question 5

The _________ is the fraction of earnings reinvested in the firm.

Accepted Answer

A)  dividend payout ratio 
B)  retention rate 
C)  plowback ratio 
D)  a and c 
E)  b and c 
A)  dividend payout ratio 
B)  retention rate 
C)  plowback ratio 
D)  a and c 
E)  b and c

Question 6

Construction Machinery Company has an expected ROE of 11%.The dividend growth rate will be _______ if the firm follows a policy of paying 25% of earnings in the form of dividends.

Accepted Answer

A)  3.0% 
B)  4.8% 
C)  8.25% 
D)  9.0% 
E)  none of these 
A)  3.0% 
B)  4.8% 
C)  8.25% 
D)  9.0% 
E)  none of these

Question 7

Monetary policy is determined by

Accepted Answer

A)  government budget decisions. 
B)  presidential mandates. 
C)  the Bank of Canada. 
D)  congressional actions. 
E)  none of these 
A)  government budget decisions. 
B)  presidential mandates. 
C)  the Bank of Canada. 
D)  congressional actions. 
E)  none of these

Question 8

Sunshine Corporation is expected to pay a dividend of $1.50 in the upcoming year.Dividends are expected to grow at the rate of 6% per year.The risk-free rate of return is 6% and the expected return on the market portfolio is 14%.The stock of Sunshine Corporation has a beta of 0.75.The intrinsic value of the stock is ________.

Accepted Answer

A)  $10.71 
B)  $15.00 
C)  $17.75 
D)  $25.00 
E)  none of these 
A)  $10.71 
B)  $15.00 
C)  $17.75 
D)  $25.00 
E)  none of these

Question 9

If a firm follows a low-investment-rate plan (applies a low plowback ratio),its dividends will be _______ now and _______ in the future than a firm that follows a high-reinvestment-rate plan.

Accepted Answer

A)  higher,higher 
B)  lower,lower 
C)  lower,higher 
D)  higher,lower 
E)  It is not possible to tell. 
A)  higher,higher 
B)  lower,lower 
C)  lower,higher 
D)  higher,lower 
E)  It is not possible to tell.

Question 10

Consider the free cash flow approach to stock valuation.Utica Manufacturing Company is expected to have before-tax cash flow from operations of $500,000 in the coming year.The firm's corporate tax rate is 30%.It is expected that $200,000 of operating cash flow will be invested in new fixed assets.Depreciation for the year will be $100,000.After the coming year,cash flows are expected to grow at 6% per year.The appropriate market capitalization rate for unleveraged cash flow is 15% per year.The firm has no outstanding debt.The projected free cash flow of Utica Manufacturing Company for the coming year is ________.

Accepted Answer

A)  $150,000 
B)  $180,000 
C)  $300,000 
D)  $380,000 
E)  none of these 
A)  $150,000 
B)  $180,000 
C)  $300,000 
D)  $380,000 
E)  none of these

Question 11

Many stock analysts assume that a mispriced stock will

Accepted Answer

A)  immediately return to its intrinsic value. 
B)  return to its intrinsic value within a few days. 
C)  never return to its intrinsic value. 
D)  gradually approach its intrinsic value over several years. 
E)  none of these. 
A)  immediately return to its intrinsic value. 
B)  return to its intrinsic value within a few days. 
C)  never return to its intrinsic value. 
D)  gradually approach its intrinsic value over several years. 
E)  none of these.

Question 12

Investment manager Peter Lynch refers to firms that are in bankruptcy or soon might be as

Accepted Answer

A)  slow growers. 
B)  stalwarts. 
C)  cyclicals. 
D)  asset plays. 
E)  turnarounds. 
A)  slow growers. 
B)  stalwarts. 
C)  cyclicals. 
D)  asset plays. 
E)  turnarounds.

Question 13

The "normal" range of price-earnings ratios for the TSE 300 Index is

Accepted Answer

A)  between 2 and 10. 
B)  between 5 and 15. 
C)  less than 8. 
D)  between 8 and 20 
E)  greater than 20. 
A)  between 2 and 10. 
B)  between 5 and 15. 
C)  less than 8. 
D)  between 8 and 20 
E)  greater than 20.

Question 14

The Gordon model

Accepted Answer

A)  is a generalization of the perpetuity formula to cover the case of a growing perpetuity. 
B)  is valid only when g is less than k. 
C)  is valid only when k is less than g. 
D)  a and b. 
E)  a and c. 
A)  is a generalization of the perpetuity formula to cover the case of a growing perpetuity. 
B)  is valid only when g is less than k. 
C)  is valid only when k is less than g. 
D)  a and b. 
E)  a and c.

Question 15

_________ is a proposition that a strong proponent of supply side economics would most likely stress.

Accepted Answer

A)  Higher marginal tax rates will lead to a reduction in the size of the budget deficit and lower interest rates as they depend on government revenues. 
B)  Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output as they encourage investors to undertake low productivity projects with substantial tax shelter benefits 
C)  Income redistribution payments will exert little impact on real aggregate supply as they do not consume resources directly. 
D)  A tax reduction will increase the disposable income of households,and thus,the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus. 
E)  None of these are likely statements for a supply-side proponent. 
A)  Higher marginal tax rates will lead to a reduction in the size of the budget deficit and lower interest rates as they depend on government revenues. 
B)  Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output as they encourage investors to undertake low productivity projects with substantial tax shelter benefits 
C)  Income redistribution payments will exert little impact on real aggregate supply as they do not consume resources directly. 
D)  A tax reduction will increase the disposable income of households,and thus,the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus. 
E)  None of these are likely statements for a supply-side proponent.

Question 16

A variety of factors relating to industry structure affect the performance of the firm,including

Accepted Answer

A)  threat of entry. 
B)  rivalry between existing competitors. 
C)  the state of the economy. 
D)  a and c. 
E)  a and b. 
A)  threat of entry. 
B)  rivalry between existing competitors. 
C)  the state of the economy. 
D)  a and c. 
E)  a and b.

Question 17

A firm's earnings per share increased from $10 to $12,dividends increased from $4.00 to $4.80,and the share price increased from $80 to $90.Given this information,it follows that _________.

Accepted Answer

A)  the stock experienced a drop in the P/E ratio 
B)  the firm had a decrease in dividend payout ratio 
C)  the firm increased the number of shares outstanding 
D)  the required rate of return decreased 
E)  none of these 
A)  the stock experienced a drop in the P/E ratio 
B)  the firm had a decrease in dividend payout ratio 
C)  the firm increased the number of shares outstanding 
D)  the required rate of return decreased 
E)  none of these

Question 18

A trough is _______.

Accepted Answer

A)  a transition from an expansion in the business cycle to the start of a contraction 
B)  a transition from a contraction in the business cycle to the start of an expansion 
C)  a depression that lasts more than three years. 
D)  only something used by farmers to feed pigs and not an investment term 
E)  none of these 
A)  a transition from an expansion in the business cycle to the start of a contraction 
B)  a transition from a contraction in the business cycle to the start of an expansion 
C)  a depression that lasts more than three years. 
D)  only something used by farmers to feed pigs and not an investment term 
E)  none of these

Question 19

The life-cycle stage in which industry leaders are likely to emerge is the

Accepted Answer

A)  start-up stage. 
B)  maturity stage. 
C)  consolidation stage. 
D)  relative decline stage. 
E)  all of these. 
A)  start-up stage. 
B)  maturity stage. 
C)  consolidation stage. 
D)  relative decline stage. 
E)  all of these.

Question 20

Consider the constant growth DDM.In a non-inflationary environment,KD Picture Frame Company is expected to pay a dividend of $2.60 in the coming year,the growth rate of dividends is expected to be 0%,and the required return on the stock will be 8%.If the inflation rate is 4%,KD Picture Frame Company is expected to pay a dividend of $2.70 in the coming year,the dividend growth rate will be 4%,and the required return on the stock will be 12.32%.In the non-inflationary environment,a share of the KD Picture Frame's stock should be worth _________.

Accepted Answer

A)  $20.00 
B)  $30.00 
C)  $31.25 
D)  $32.50 
E)  none of these 
A)  $20.00 
B)  $30.00 
C)  $31.25 
D)  $32.50 
E)  none of these

A firm has a return on equity of 20% and a dividend payout ratio of 30%.The firm's anticipated growth rate is _______.

Which of the following are key economic statistics that are used to describe the state of the macro economy? I.Gross domestic product II.The unemployment rate III.Inflation IV.Consumer sentiment V.The budget deficit

Dividend discount models and P/E ratios are used by __________ to try to find mispriced securities.

The _________ is the fraction of earnings reinvested in the firm.

Construction Machinery Company has an expected ROE of 11%.The dividend growth rate will be _______ if the firm follows a policy of paying 25% of earnings in the form of dividends.

Monetary policy is determined by

If a firm follows a low-investment-rate plan (applies a low plowback ratio),its dividends will be _ now and _ in the future than a firm that follows a high-reinvestment-rate plan.

Many stock analysts assume that a mispriced stock will

Investment manager Peter Lynch refers to firms that are in bankruptcy or soon might be as

The "normal" range of price-earnings ratios for the TSE 300 Index is

The Gordon model

_________ is a proposition that a strong proponent of supply side economics would most likely stress.

A variety of factors relating to industry structure affect the performance of the firm,including

A firm's earnings per share increased from $10 to $12,dividends increased from $4.00 to $4.80,and the share price increased from $80 to $90.Given this information,it follows that _________.

A trough is _______.

The life-cycle stage in which industry leaders are likely to emerge is the

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

Exam 15: Options Markets

A firm has a return on equity of 20% and a dividend payout ratio of 30%.The firm's anticipated growth rate is _______.

Which of the following are key economic statistics that are used to describe the state of the macro economy? I.Gross domestic product II.The unemployment rate III.Inflation IV.Consumer sentiment V.The budget deficit

Dividend discount models and P/E ratios are used by __________ to try to find mispriced securities.

The _________ is the fraction of earnings reinvested in the firm.

Construction Machinery Company has an expected ROE of 11%.The dividend growth rate will be _______ if the firm follows a policy of paying 25% of earnings in the form of dividends.

Monetary policy is determined by

If a firm follows a low-investment-rate plan (applies a low plowback ratio),its dividends will be _______ now and _______ in the future than a firm that follows a high-reinvestment-rate plan.

Many stock analysts assume that a mispriced stock will

Investment manager Peter Lynch refers to firms that are in bankruptcy or soon might be as

The "normal" range of price-earnings ratios for the TSE 300 Index is

The Gordon model

_________ is a proposition that a strong proponent of supply side economics would most likely stress.

A variety of factors relating to industry structure affect the performance of the firm,including

A firm's earnings per share increased from $10 to $12,dividends increased from $4.00 to $4.80,and the share price increased from $80 to $90.Given this information,it follows that _________.

A trough is _______.

The life-cycle stage in which industry leaders are likely to emerge is the

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

If a firm follows a low-investment-rate plan (applies a low plowback ratio),its dividends will be _ now and _ in the future than a firm that follows a high-reinvestment-rate plan.