Exam 29: Basic Financial Tools: a Review

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The Jameson 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 Jameson's current stock price,P0?

(Multiple Choice)
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A new investment opportunity for you is an annuity that pays $550 at the beginning of each year for 3 years.You could earn 5.5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

(Multiple Choice)
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Portfolio A has but one stock,while Portfolio B consists of all stocks that trade in the market,each held in proportion to its market value.Because of its diversification,Portfolio B will by definition be riskless.

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Dixon Food's stock has a beta of 1.4,while Clark Café's stock has a beta of 0.7.Assume that the risk-free rate,rRF,is 5.5% and the market risk premium, (rM − rRF),equals 4%.Which of the following statements is CORRECT?

(Multiple Choice)
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McGaha Enterprises expects earnings and dividends to grow at a rate of 25% for the next 4 years,after the growth rate in earnings and dividends will fall to zero,i.e.,g = 0.The company's last dividend,D0,was $1.25,its beta is 1.20,the market risk premium is 5.50%,and the risk-free rate is 3.00%.What is the current price of the common stock?

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Which of the following statements is CORRECT?

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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? Required return 10\% 12\% Market price \ 25 \ 40 Expected growth 7\% 9\%

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