Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Given that markets are efficient,what is the most logical explanation of the fact that a portfolio manager can outperform the S&P 500 by 5% annually?

Accepted Answer

A)  The manager is an expert stock selector. 
B)  The manager has relied on insider information. 
C)  Stocks do not follow a random-walk pattern. 
D)  The manager's results have not been adjusted for the riskiness of the portfolio. 
A)  The manager is an expert stock selector. 
B)  The manager has relied on insider information. 
C)  Stocks do not follow a random-walk pattern. 
D)  The manager's results have not been adjusted for the riskiness of the portfolio.

Question 3

Which of the following is more likely to be responsible for a firm having low PVGO?

Accepted Answer

A)  ROE exceeds required return. 
B)  Plowback is very high. 
C)  Payout is very high. 
D)  Book value of equity is low. 
A)  ROE exceeds required return. 
B)  Plowback is very high. 
C)  Payout is very high. 
D)  Book value of equity is low.

Question 4

A payout ratio of 35% for a company indicates that:

Accepted Answer

A)  35% of dividends are plowed back for growth. 
B)  65% of dividends are plowed back for growth. 
C)  65% of earnings are paid out as dividends. 
D)  35% of earnings are paid out as dividends. 
A)  35% of dividends are plowed back for growth. 
B)  65% of dividends are plowed back for growth. 
C)  65% of earnings are paid out as dividends. 
D)  35% of earnings are paid out as dividends.

Question 5

The dividend discount model states that today's stock price equals the present value of all expected future dividends.

Accepted Answer

A) True 
 B)False

Question 6

What is the plowback ratio for a firm that has earnings per share of $12.00 and pays out $4.00 per share as dividends?

Accepted Answer

A)  25.00% 
B)  33.33% 
C)  66.67% 
D)  75.00% 
A)  25.00% 
B)  33.33% 
C)  66.67% 
D)  75.00%

Question 7

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 semistrong-form efficient. 
D)  is strong-form efficient. 
A)  is weak-form efficient. 
B)  is not weak-form efficient. 
C)  is semistrong-form efficient. 
D)  is strong-form efficient.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Research indicates that the correlation coefficient between successive days' stock price changes is:

Accepted Answer

A)  quite close to +1. 
B)  quite close to -1. 
C)  quite close to zero. 
D)  directly related to the stock's beta. 
A)  quite close to +1. 
B)  quite close to -1. 
C)  quite close to zero. 
D)  directly related to the stock's beta.

Question 10

Other things equal,a firm's sustainable growth rate could increase as a result of:

Accepted Answer

A)  increasing the plowback ratio. 
B)  increasing the payout ratio. 
C)  decreasing the return on equity. 
D)  increasing total assets. 
A)  increasing the plowback ratio. 
B)  increasing the payout ratio. 
C)  decreasing the return on equity. 
D)  increasing total assets.

Question 11

Firms with valuable intangible assets are more likely to show a(n):

Accepted Answer

A)  excess of book value over market value of equity. 
B)  high going-concern value. 
C)  low liquidation value. 
D)  low P/E ratio. 
A)  excess of book value over market value of equity. 
B)  high going-concern value. 
C)  low liquidation value. 
D)  low P/E ratio.

Question 12

When investors are not capable of making superior investment decisions on a continual basis based on past prices or public or private information,the market is said to be:

Accepted Answer

A)  weak-form efficient. 
B)  semistrong-form efficient. 
C)  strong-form efficient. 
D)  fundamentally efficient. 
A)  weak-form efficient. 
B)  semistrong-form efficient. 
C)  strong-form efficient. 
D)  fundamentally efficient.

Question 13

If investors can consistently profit from thorough reading of published financial information,then the market can,at best,be characterized as:

Accepted Answer

A)  weak-form efficient. 
B)  semistrong-form efficient. 
C)  strong-form efficient. 
D)  all of these. 
A)  weak-form efficient. 
B)  semistrong-form efficient. 
C)  strong-form efficient. 
D)  all of these.

Question 14

A company with a return on equity of 15% and a plowback ratio of 60% would expect a constant-growth rate of:

Accepted Answer

A)  4%. 
B)  9%. 
C)  21%. 
D)  25%. 
A)  4%. 
B)  9%. 
C)  21%. 
D)  25%.

Question 15

In a valuation of a nonconstant dividend growth stock,the terminal value represents the:

Accepted Answer

A)  point at which the present value of future dividends equals zero. 
B)  maturity date of the stock. 
C)  present value of future dividends from that point on. 
D)  highest value that the stock will attain. 
A)  point at which the present value of future dividends equals zero. 
B)  maturity date of the stock. 
C)  present value of future dividends from that point on. 
D)  highest value that the stock will attain.

Question 16

What is the minimum amount that shareholders should expect to receive in the event of a complete corporate liquidation?

Accepted Answer

A)  Market value of equity. 
B)  Book value of equity. 
C)  Zero. 
D)  Shareholders may be required to pay to be liquidated. 
A)  Market value of equity. 
B)  Book value of equity. 
C)  Zero. 
D)  Shareholders may be required to pay to be liquidated.

Question 17

What would be the approximate expected price of a stock when dividends are expected to grow at a 25% rate for 3 years,then grow at a constant rate of 5%,if the stock's required return is 13% and next year's dividend will be $4.00?

Accepted Answer

A)  $61.60 
B)  $62.08 
C)  $68.62 
D)  $79.44 
A)  $61.60 
B)  $62.08 
C)  $68.62 
D)  $79.44

Question 18

Which of the following values treats the firm as a going concern?

Accepted Answer

A)  Market value 
B)  Book value 
C)  Liquidation value 
D)  None of these 
A)  Market value 
B)  Book value 
C)  Liquidation value 
D)  None of these

Question 19

Which of the following statements is correct about a stock currently selling for $50 per share that has a 16% expected return and a 10% expected capital appreciation?

Accepted Answer

A)  Its expected dividend exceeds the actual dividend. 
B)  Its expected return will exceed the actual return. 
C)  It is expected to pay $3 in annual dividends. 
D)  It is expected to pay $8 in annual dividends. 
A)  Its expected dividend exceeds the actual dividend. 
B)  Its expected return will exceed the actual return. 
C)  It is expected to pay $3 in annual dividends. 
D)  It is expected to pay $8 in annual dividends.

Question 20

If next year's dividend is forecast to be $5.00,the constant-growth rate is 4%,and the discount rate is 16%,then the current stock price should be:

Accepted Answer

A)  $31.25 
B)  $40.00 
C)  $41.67 
D)  $43.33 
A)  $31.25 
B)  $40.00 
C)  $41.67 
D)  $43.33

Exam 7: Valuing Stocks

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

Given that markets are efficient,what is the most logical explanation of the fact that a portfolio manager can outperform the S&P 500 by 5% annually?

Which of the following is more likely to be responsible for a firm having low PVGO?

A payout ratio of 35% for a company indicates that:

The dividend discount model states that today's stock price equals the present value of all expected future dividends.

What is the plowback ratio for a firm that has earnings per share of $12.00 and pays out $4.00 per share as dividends?

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

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

Research indicates that the correlation coefficient between successive days' stock price changes is:

Other things equal,a firm's sustainable growth rate could increase as a result of:

Firms with valuable intangible assets are more likely to show a(n):

When investors are not capable of making superior investment decisions on a continual basis based on past prices or public or private information,the market is said to be:

If investors can consistently profit from thorough reading of published financial information,then the market can,at best,be characterized as:

A company with a return on equity of 15% and a plowback ratio of 60% would expect a constant-growth rate of:

In a valuation of a nonconstant dividend growth stock,the terminal value represents the:

What is the minimum amount that shareholders should expect to receive in the event of a complete corporate liquidation?

What would be the approximate expected price of a stock when dividends are expected to grow at a 25% rate for 3 years,then grow at a constant rate of 5%,if the stock's required return is 13% and next year's dividend will be $4.00?

Which of the following values treats the firm as a going concern?

Which of the following statements is correct about a stock currently selling for $50 per share that has a 16% expected return and a 10% expected capital appreciation?

If next year's dividend is forecast to be $5.00,the constant-growth rate is 4%,and the discount rate is 16%,then the current stock price should be:

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters