Question 1

At your full-service brokerage firm, it costs $120 per stock trade. How much money do you receive after selling 200 shares of Ralph Lauren (RL), which trades at $85.13?

Accepted Answer

A) $16,546.00 
B) $16,906.00 
C) $17,026.00 
D) $17,146.00 
A) $16,546.00 
B) $16,906.00 
C) $17,026.00 
D) $17,146.00

Question 2

Home Depot (HD) recently paid a $0.90 dividend. The dividend is expected to grow at a 17 percent rate. At the current stock price of $33.08, what is the return shareholders are expecting?

Accepted Answer

A) 2.70 percent 
B) 17.03 percent 
C) 17.18 percent 
D) 20.18 percent 
A) 2.70 percent 
B) 17.03 percent 
C) 17.18 percent 
D) 20.18 percent

Question 3

Laura is considering two investments: Stock A and B. Both stocks have a P/E ratio of 19. Stock A has an expected growth rate of 5 percent and stock B has an expected growth rate of 13 percent. Which is the better stock and why?

Accepted Answer

A)  Stock B is better because it is considered to be cheaper than Stock A. 
B)  Stock A is better because it is expected to grow at a slower rate and therefore will be less risky than Stock B. 
C)  Since the P/E ratios are the same, Laura would be indifferent between the two stocks. 
D)  None of these statements is correct. 
A)  Stock B is better because it is considered to be cheaper than Stock A. 
B)  Stock A is better because it is expected to grow at a slower rate and therefore will be less risky than Stock B. 
C)  Since the P/E ratios are the same, Laura would be indifferent between the two stocks. 
D)  None of these statements is correct.

Question 4

A firm recently paid a $1.00 annual dividend. The dividend is expected to increase by 10 percent in each of the next four years. In the fourth year, the stock price is expected to be $100. If the required rate for this stock is 14 percent, what is its value?

Accepted Answer

A) $25.00 
B) $36.60 
C) $62.87 
D) $72.30 
A) $25.00 
B) $36.60 
C) $62.87 
D) $72.30

Question 5

A firm is expected to pay a $4.00 dividend per share. The stock is selling in the market place for $55.00 per share. If investors are demanding 12 percent on this stock, what is this stock's growth rate?

Accepted Answer

A) 4.73 percent 
B) 7.25 percent 
C) 5.91 percent 
D) 6.14 percent 
A) 4.73 percent 
B) 7.25 percent 
C) 5.91 percent 
D) 6.14 percent

Question 6

International Business Machines (IBM) has earnings per share of $6.85 and a P/E ratio of 15.19. What is the stock price?

Accepted Answer

A) $0.45 
B) $2.22 
C) $45.09 
D) $104.05 
A) $0.45 
B) $2.22 
C) $45.09 
D) $104.05

Question 7

Coca-Cola recently paid a $3.00 dividend. Investors expect a 12 percent return on this stock. What is the difference in price if Coca-Cola is expected to grow at 6 percent versus 8 percent?

Accepted Answer

A) $18 
B) $48 
C) $28 
D) $38 
A) $18 
B) $48 
C) $28 
D) $38

Question 8

If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 7 percent, what's the value of the stock?

Accepted Answer

A) $0.21 
B) $0.43 
C) $21.00 
D) $42.86 
A) $0.21 
B) $0.43 
C) $21.00 
D) $42.86

Question 9

Which of the following is incorrect with respect to preferred stock?

Accepted Answer

A) Preferred stock is largely owned by other companies rather than individual investors. 
B) Preferred stock takes preference over common stock in bankruptcy proceedings. 
C) Preferred stock dividends do not grow. 
D) All of these statements are correct. 
A) Preferred stock is largely owned by other companies rather than individual investors. 
B) Preferred stock takes preference over common stock in bankruptcy proceedings. 
C) Preferred stock dividends do not grow. 
D) All of these statements are correct.

Question 10

Target Corp. (TGT) paid a $0.21 dividend per share in 2000, which grew to $0.52 in 2007. This growth is expected to continue. What is the value of this stock at the beginning of 2007 when the required rate of return is 14.77 percent?

Accepted Answer

A) $3.52 
B) $55.32 
C) $62.97 
D) $63.49 
A) $3.52 
B) $55.32 
C) $62.97 
D) $63.49

Question 11

JUJU's dividend next year is expected to be $5.50. It is trading at $45 and is expected to grow at 4 percent per year. What is JUJU's dividend yield and capital gain?

Accepted Answer

A) 2.5 percent; 6 percent 
B) 12.22 percent; 4 percent 
C) 4 percent; 12.22 percent 
D) 6 percent; 2.5 percent 
A) 2.5 percent; 6 percent 
B) 12.22 percent; 4 percent 
C) 4 percent; 12.22 percent 
D) 6 percent; 2.5 percent

Question 12

We can estimate a stock's value by:

Accepted Answer

A) using the book value of the total stockholder equity section. 
B) discounting the future dividends and future stock price appreciation. 
C) compounding the past dividends and past stock price appreciation. 
D) using the book value of the total assets divided by the number of shares outstanding. 
A) using the book value of the total stockholder equity section. 
B) discounting the future dividends and future stock price appreciation. 
C) compounding the past dividends and past stock price appreciation. 
D) using the book value of the total assets divided by the number of shares outstanding.

Question 13

Studies of investor psychology have discovered that:

Accepted Answer

A) investors tend to trade too much. 
B) investors tend to sell their winners too soon. 
C) investors tend to become overconfident. 
D) All of these. 
A) investors tend to trade too much. 
B) investors tend to sell their winners too soon. 
C) investors tend to become overconfident. 
D) All of these.

Question 14

Suppose that a firm's recent earnings per share and dividends per share are $2.50 and $1.00, respectively. Both are expected to grow at 10 percent. However, the firm's current P/E ratio of 22 seems high for this growth rate. The P/E ratio is expected to fall to 18 within five years. Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years. Then discount these cash flows using a 14 percent required rate.

Accepted Answer

A) $37.51 
B) $37.64 
C) $42.14 
D) $72.47 
A) $37.51 
B) $37.64 
C) $42.14 
D) $72.47

Question 15

Stock valuation model dynamics make clear that lower discount rates lead to:

Accepted Answer

A) lower valuations. 
B) higher valuations. 
C) lower growth rates. 
D) higher growth rates. 
A) lower valuations. 
B) higher valuations. 
C) lower growth rates. 
D) higher growth rates.

Question 16

GEN has 10 million shares outstanding and a stock price of $89.25. What is GEN's market capitalization?

Accepted Answer

A) $89,250,000,000 
B) $89,250,000 
C) $892,500,000 
D) $892,500 
A) $89,250,000,000 
B) $89,250,000 
C) $892,500,000 
D) $892,500

Question 17

The NASDAQ Composite includes:

Accepted Answer

A) all of the stocks listed on the NASDAQ Stock Exchange. 
B) 30 of the largest (market capitalization) and most active companies in the U.S. economy. 
C) 500 firms that are the largest in their respective economic sectors. 
D) 500 firms that are the largest as ranked by Fortune Magazine. 
A) all of the stocks listed on the NASDAQ Stock Exchange. 
B) 30 of the largest (market capitalization) and most active companies in the U.S. economy. 
C) 500 firms that are the largest in their respective economic sectors. 
D) 500 firms that are the largest as ranked by Fortune Magazine.

Question 18

If a preferred stock from Ecology and Environment, Inc. (EEI) pays $2.50 in annual dividends, and the required return on the preferred stock is 5.8 percent, what's the value of the stock?

Accepted Answer

A) $0.15 
B) $0.43 
C) $14.50 
D) $43.10 
A) $0.15 
B) $0.43 
C) $14.50 
D) $43.10

Question 19

You would like to sell 100 shares of Pfizer, Inc. (PFE). The current bid and ask quotes are $27.22 and $27.25, respectively. You place a limit sell-order at $27.24. If the trade executes, how much money do you receive from the buyer?

Accepted Answer

A) $2,722.00 
B) $2,724.00 
C) $2,725.00 
D) $5,446.00 
A) $2,722.00 
B) $2,724.00 
C) $2,725.00 
D) $5,446.00

Question 20

A firm is expected to pay a $2.00 dividend per share. The stock is selling in the market place for $50.00 per share. If investors are demanding 10 percent on this stock, what is this stock's growth rate?

Accepted Answer

A) 4.73 percent 
B) 5.92 percent 
C) 6.00 percent 
D) 7.29 percent 
A) 4.73 percent 
B) 5.92 percent 
C) 6.00 percent 
D) 7.29 percent

At your full-service brokerage firm, it costs $120 per stock trade. How much money do you receive after selling 200 shares of Ralph Lauren (RL), which trades at $85.13?

Home Depot (HD) recently paid a $0.90 dividend. The dividend is expected to grow at a 17 percent rate. At the current stock price of $33.08, what is the return shareholders are expecting?

Laura is considering two investments: Stock A and B. Both stocks have a P/E ratio of 19. Stock A has an expected growth rate of 5 percent and stock B has an expected growth rate of 13 percent. Which is the better stock and why?

A firm recently paid a $1.00 annual dividend. The dividend is expected to increase by 10 percent in each of the next four years. In the fourth year, the stock price is expected to be $100. If the required rate for this stock is 14 percent, what is its value?

A firm is expected to pay a $4.00 dividend per share. The stock is selling in the market place for $55.00 per share. If investors are demanding 12 percent on this stock, what is this stock's growth rate?

International Business Machines (IBM) has earnings per share of $6.85 and a P/E ratio of 15.19. What is the stock price?

Coca-Cola recently paid a $3.00 dividend. Investors expect a 12 percent return on this stock. What is the difference in price if Coca-Cola is expected to grow at 6 percent versus 8 percent?

If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 7 percent, what's the value of the stock?

Which of the following is incorrect with respect to preferred stock?

Target Corp. (TGT) paid a $0.21 dividend per share in 2000, which grew to $0.52 in 2007. This growth is expected to continue. What is the value of this stock at the beginning of 2007 when the required rate of return is 14.77 percent?

JUJU's dividend next year is expected to be $5.50. It is trading at $45 and is expected to grow at 4 percent per year. What is JUJU's dividend yield and capital gain?

We can estimate a stock's value by:

Studies of investor psychology have discovered that:

Stock valuation model dynamics make clear that lower discount rates lead to:

GEN has 10 million shares outstanding and a stock price of $89.25. What is GEN's market capitalization?

The NASDAQ Composite includes:

If a preferred stock from Ecology and Environment, Inc. (EEI) pays $2.50 in annual dividends, and the required return on the preferred stock is 5.8 percent, what's the value of the stock?

You would like to sell 100 shares of Pfizer, Inc. (PFE). The current bid and ask quotes are $27.22 and $27.25, respectively. You place a limit sell-order at $27.24. If the trade executes, how much money do you receive from the buyer?

A firm is expected to pay a $2.00 dividend per share. The stock is selling in the market place for $50.00 per share. If investors are demanding 10 percent on this stock, what is this stock's growth rate?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Filters

Exam 8: Valuing Stocks

At your full-service brokerage firm, it costs $120 per stock trade. How much money do you receive after selling 200 shares of Ralph Lauren (RL), which trades at $85.13?

Home Depot (HD) recently paid a $0.90 dividend. The dividend is expected to grow at a 17 percent rate. At the current stock price of $33.08, what is the return shareholders are expecting?

Laura is considering two investments: Stock A and B. Both stocks have a P/E ratio of 19. Stock A has an expected growth rate of 5 percent and stock B has an expected growth rate of 13 percent. Which is the better stock and why?

A firm recently paid a $1.00 annual dividend. The dividend is expected to increase by 10 percent in each of the next four years. In the fourth year, the stock price is expected to be $100. If the required rate for this stock is 14 percent, what is its value?

A firm is expected to pay a $4.00 dividend per share. The stock is selling in the market place for $55.00 per share. If investors are demanding 12 percent on this stock, what is this stock's growth rate?

International Business Machines (IBM) has earnings per share of $6.85 and a P/E ratio of 15.19. What is the stock price?

Coca-Cola recently paid a $3.00 dividend. Investors expect a 12 percent return on this stock. What is the difference in price if Coca-Cola is expected to grow at 6 percent versus 8 percent?

If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 7 percent, what's the value of the stock?

Which of the following is incorrect with respect to preferred stock?

Target Corp. (TGT) paid a $0.21 dividend per share in 2000, which grew to $0.52 in 2007. This growth is expected to continue. What is the value of this stock at the beginning of 2007 when the required rate of return is 14.77 percent?

JUJU's dividend next year is expected to be $5.50. It is trading at $45 and is expected to grow at 4 percent per year. What is JUJU's dividend yield and capital gain?

We can estimate a stock's value by:

Studies of investor psychology have discovered that:

Stock valuation model dynamics make clear that lower discount rates lead to:

GEN has 10 million shares outstanding and a stock price of $89.25. What is GEN's market capitalization?

The NASDAQ Composite includes:

If a preferred stock from Ecology and Environment, Inc. (EEI) pays $2.50 in annual dividends, and the required return on the preferred stock is 5.8 percent, what's the value of the stock?

You would like to sell 100 shares of Pfizer, Inc. (PFE). The current bid and ask quotes are $27.22 and $27.25, respectively. You place a limit sell-order at $27.24. If the trade executes, how much money do you receive from the buyer?

A firm is expected to pay a $2.00 dividend per share. The stock is selling in the market place for $50.00 per share. If investors are demanding 10 percent on this stock, what is this stock's growth rate?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Filters