Question 1

Founders' shares,a type of classified stock owned by the firm's founders,generally have more votes per share than the other classes of common stock.

Accepted Answer

A) True 
 B)False

Question 2

A stock is expected to pay a year-end dividend of $2.00,i.e. ,D1 = $2.00.The dividend is expected to decline at a rate of 5% a year forever (g = -5%) .If the company is in equilibrium and its expected and required rate of return is 15%,then which of the following statements is CORRECT?

Accepted Answer

A)   The company's current stock price is $20.
B)   The company's dividend yield 5 years from now is expected to be 10%.
C)   The constant growth model cannot be used because the growth rate is negative.
D)   The company's expected capital gains yield is 5%.
E)   The company's expected stock price at the beginning of next year is $9.50.F) D) and E)
G) A) and B)

Question 3

The preemptive right gives current stockholders the right to purchase,on a pro rata basis,any new shares issued by the firm.This right helps protect current stockholders against both dilution of control and dilution of value.

Accepted Answer

A) True 
 B)False

Question 4

According to the nonconstant growth model discussed in the textbook,the discount rate used to find the present value of the expected cash flows during the initial growth period is the same as the discount rate used to find the PVs of cash flows during the subsequent constant growth period.

Accepted Answer

A) True 
 B)False

Question 5

Whited Inc.'s stock currently sells for $35.25 per share.The dividend is projected to increase at a constant rate of 5.25% per year.The required rate of return on the stock,rs,is 11.50%.What is the stock's expected price 5 years from now?

Accepted Answer

A)   $45.53
B)   $52.81
C)   $40.06
D)   $39.15
E)   $47.80F) All of the above
G) C) and D)

Question 6

Stock X has the following data.Assuming the stock market is efficient and the stock is in equilibrium,which of the following statements is CORRECT?   Expected dividend, D1$3.00 Current Price, P0$50 Expected constant growth rate 6.0%\begin{array} { l r } 	ext { Expected dividend, } D _ { 1 } & \$ 3.00 \	ext { Current Price, } P _ { 0 } & \$ 50 \	ext { Expected constant growth rate } & 6.0 \%\end{array} Expected dividend, D1​ Current Price, P0​ Expected constant growth rate ​$3.00$506.0%​ 
?

Accepted Answer

A)   The stock's required return is 10%.
B)   The stock's expected dividend yield and growth rate are equal.
C)   The stock's expected dividend yield is 5%.
D)   The stock's expected capital gains yield is 5%.
E)   The stock's expected price 10 years from now is $100.00. F) B) and E)
G) B) and D)

Question 7

If a stock's dividend is expected to grow at a constant rate of 5% a year,then which of the following statements is CORRECT? The stock is in equilibrium.

Accepted Answer

A)   The expected return on the stock is 5% a year.
B)   The stock's dividend yield is 5%.
C)   The price of the stock is expected to decline in the future.
D)   The stock's required return must be equal to or less than 5%.
E)   The stock's price one year from now is expected to be 5% above the current price.F) C) and D)
G) A) and B)

Question 8

Classified stock differentiates various classes of common stock.Using it is one way companies can meet special needs,such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.

Accepted Answer

A) True 
 B)False

Question 9

Stocks A and B have the following data.The market risk premium is 6.0% and the risk-free rate is 6.4%.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT?  AB Beta 1.100.90 Constant growth rate 7.00%7.00%\begin{array} { l r r } & \mathrm { A } & \mathrm { B } \	ext { Beta } & 1.10 & 0.90 \	ext { Constant growth rate } & 7.00 \% & 7.00 \%\end{array} Beta  Constant growth rate ​A1.107.00%​B0.907.00%​ 
?

Accepted Answer

A)   Stock A must have a higher stock price than Stock B.
B)   Stock A must have a higher dividend yield than Stock B.
C)   Stock B's dividend yield equals its expected dividend growth rate.
D)   Stock B must have the higher required return.
E)   Stock B could have the higher expected return. F) A) and C)
G) A) and B)

Question 10

A stock is expected to pay a dividend of $0.75 at the end of the year.The required rate of return is rs = 10.5%,and the expected constant growth rate is g = 8.2%.What is the stock's current price?

Accepted Answer

A)   $27.39
B)   $29.02
C)   $32.61
D)   $38.80
E)   $27.07F) C) and D)
G) C) and E)

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A)   Preferred stockholders have a priority over bondholders to the income in the event of a bankruptcy,but not to the proceeds in the event of a liquidation.
B)   The preferred stock of a given firm is generally less risky to investors than the same firm's common stock.
C)   Corporations cannot buy the preferred stocks of other corporations.
D)   Preferred dividends are not generally cumulative.
E)   A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.F) B) and E)
G) A) and C)

Question 12

Carter's preferred stock pays a dividend of $1.00 per quarter.If the price of the stock is $57.50,what is its nominal (not effective) annual rate of return?

Accepted Answer

A)   7.03%
B)   8.56%
C)   6.75%
D)   5.84%
E)   6.96%F) None of the above
G) B) and E)

Question 13

For a stock to be in equilibrium,two conditions are necessary: (1)The stock's market price must equal its intrinsic value as seen by the marginal investor,and (2)the expected return as seen by the marginal investor must equal his or her required return.

Accepted Answer

A) True 
 B)False

Question 14

Reddick Enterprises' stock currently sells for $24.50 per share.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock,rs,is 9.00%.What is the stock's expected price 3 years from today?

Accepted Answer

A)   $31.65
B)   $24.45
C)   $28.77
D)   $33.66
E)   $26.76F) B) and D)
G) C) and D)

Question 15

The total return on a share of stock refers to the dividend yield less any commissions paid when the stock is purchased and sold.

Accepted Answer

A) True 
 B)False

Question 16

For a stock to be in equilibrium-that is,for there to be no long-term pressure for its price to change-the

Accepted Answer

A)   expected future return must be less than the most recent past realized return.
B)   past realized return must be equal to the expected return during the same period.
C)   required return must equal the realized return in all periods.
D)   expected return must be equal to both the required future return and the past realized return.
E)   expected future return must be equal to the required return.F) C) and E)
G) A) and D)

Question 17

Which of the following statements is CORRECT?

Accepted Answer

A)   The constant growth model takes into consideration the capital gains investors expect to earn on a stock.
B)   Two firms with the same expected dividend and growth rate must also have the same stock price.
C)   It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant.
D)   If a stock has a required rate of return rs = 12%,and if its dividend is expected to grow at a constant rate of 5%,then the stock's dividend yield is also 5%.
E)   The price of a stock is the present value of all expected future dividends,discounted at the dividend growth rate.F) B) and E)
G) A) and E)

Question 18

Molen Inc.has an outstanding issue of perpetual preferred stock with an annual dividend of $2.00 per share.If the required return on this preferred stock is 6.5%,then at what price should the stock sell?

Accepted Answer

A)   $30.77
B)   $32.92
C)   $38.15
D)   $23.38
E)   $27.38F) B) and C)
G) All of the above

Question 19

A proxy is a document giving one party the authority to act for another party,including the power to vote shares of common stock.Proxies can be important tools relating to control of firms.

Accepted Answer

A) True 
 B)False

Question 20

Stocks A and B have the same price and are in equilibrium,but Stock A has the higher required rate of return.Which of the following statements is CORRECT?

Accepted Answer

A)   If Stock A has a lower dividend yield than Stock B,then its expected capital gains yield must be higher than Stock B's.
B)   Stock B must have a higher dividend yield than Stock A.
C)   Stock A must have a higher dividend yield than Stock B.
D)   If Stock A has a higher dividend yield than Stock B,then its expected capital gains yield must be lower than Stock B's.
E)   Stock A must have both a higher dividend yield and a higher capital gains yield than Stock B.F) B) and D)
G) A) and B)

Exam 9: Stocks and Their Valuation

Which of the following statements is CORRECT?

Correct Answer
verified

If a stock's dividend is expected to grow at a constant rate of 5% a year,then which of the following statements is CORRECT? The stock is in equilibrium.

Correct Answer
verified

A stock is expected to pay a year-end dividend of $2.00,i.e. ,D₁ = $2.00.The dividend is expected to decline at a rate of 5% a year forever (g = -5%) .If the company is in equilibrium and its expected and required rate of return is 15%,then which of the following statements is CORRECT?

Correct Answer
verified

Correct Answer
verified

Reddick Enterprises' stock currently sells for $24.50 per share.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock,r_s,is 9.00%.What is the stock's expected price 3 years from today?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Correct Answer
verified

For a stock to be in equilibrium-that is,for there to be no long-term pressure for its price to change-the

Correct Answer
verified

The preemptive right gives current stockholders the right to purchase,on a pro rata basis,any new shares issued by the firm.This right helps protect current stockholders against both dilution of control and dilution of value.

Correct Answer
verified

For a stock to be in equilibrium,two conditions are necessary: (1)The stock's market price must equal its intrinsic value as seen by the marginal investor,and (2)the expected return as seen by the marginal investor must equal his or her required return.

Correct Answer
verified

A proxy is a document giving one party the authority to act for another party,including the power to vote shares of common stock.Proxies can be important tools relating to control of firms.

Correct Answer
verified

The total return on a share of stock refers to the dividend yield less any commissions paid when the stock is purchased and sold.

Correct Answer
verified

A stock is expected to pay a dividend of $0.75 at the end of the year.The required rate of return is r_s = 10.5%,and the expected constant growth rate is g = 8.2%.What is the stock's current price?

Correct Answer
verified

Carter's preferred stock pays a dividend of $1.00 per quarter.If the price of the stock is $57.50,what is its nominal (not effective) annual rate of return?

Correct Answer
verified

Founders' shares,a type of classified stock owned by the firm's founders,generally have more votes per share than the other classes of common stock.

Correct Answer
verified

Stocks A and B have the same price and are in equilibrium,but Stock A has the higher required rate of return.Which of the following statements is CORRECT?

Correct Answer
verified

Classified stock differentiates various classes of common stock.Using it is one way companies can meet special needs,such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.

Correct Answer
verified

According to the nonconstant growth model discussed in the textbook,the discount rate used to find the present value of the expected cash flows during the initial growth period is the same as the discount rate used to find the PVs of cash flows during the subsequent constant growth period.

Correct Answer
verified

Whited Inc.'s stock currently sells for $35.25 per share.The dividend is projected to increase at a constant rate of 5.25% per year.The required rate of return on the stock,r_s,is 11.50%.What is the stock's expected price 5 years from now?

Correct Answer
verified

Molen Inc.has an outstanding issue of perpetual preferred stock with an annual dividend of $2.00 per share.If the required return on this preferred stock is 6.5%,then at what price should the stock sell?

Correct Answer
verified

Exam 9: Stocks and Their Valuation

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

If a stock's dividend is expected to grow at a constant rate of 5% a year,then which of the following statements is CORRECT? The stock is in equilibrium.

Correct AnswerverifiedShow Answer

A stock is expected to pay a year-end dividend of $2.00,i.e. ,D1 = $2.00.The dividend is expected to decline at a rate of 5% a year forever (g = -5%) .If the company is in equilibrium and its expected and required rate of return is 15%,then which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Reddick Enterprises' stock currently sells for $24.50 per share.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock,rs,is 9.00%.What is the stock's expected price 3 years from today?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For a stock to be in equilibrium-that is,for there to be no long-term pressure for its price to change-the

Correct AnswerverifiedShow Answer

The preemptive right gives current stockholders the right to purchase,on a pro rata basis,any new shares issued by the firm.This right helps protect current stockholders against both dilution of control and dilution of value.

Correct AnswerverifiedShow Answer

For a stock to be in equilibrium,two conditions are necessary: (1)The stock's market price must equal its intrinsic value as seen by the marginal investor,and (2)the expected return as seen by the marginal investor must equal his or her required return.

Correct AnswerverifiedShow Answer

A proxy is a document giving one party the authority to act for another party,including the power to vote shares of common stock.Proxies can be important tools relating to control of firms.

Correct AnswerverifiedShow Answer

The total return on a share of stock refers to the dividend yield less any commissions paid when the stock is purchased and sold.

Correct AnswerverifiedShow Answer

A stock is expected to pay a dividend of $0.75 at the end of the year.The required rate of return is rs = 10.5%,and the expected constant growth rate is g = 8.2%.What is the stock's current price?

Correct AnswerverifiedShow Answer

Carter's preferred stock pays a dividend of $1.00 per quarter.If the price of the stock is $57.50,what is its nominal (not effective) annual rate of return?

Correct AnswerverifiedShow Answer

Founders' shares,a type of classified stock owned by the firm's founders,generally have more votes per share than the other classes of common stock.

Correct AnswerverifiedShow Answer

Stocks A and B have the same price and are in equilibrium,but Stock A has the higher required rate of return.Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Classified stock differentiates various classes of common stock.Using it is one way companies can meet special needs,such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.

Correct AnswerverifiedShow Answer

According to the nonconstant growth model discussed in the textbook,the discount rate used to find the present value of the expected cash flows during the initial growth period is the same as the discount rate used to find the PVs of cash flows during the subsequent constant growth period.

Correct AnswerverifiedShow Answer

Whited Inc.'s stock currently sells for $35.25 per share.The dividend is projected to increase at a constant rate of 5.25% per year.The required rate of return on the stock,rs,is 11.50%.What is the stock's expected price 5 years from now?

Correct AnswerverifiedShow Answer

Molen Inc.has an outstanding issue of perpetual preferred stock with an annual dividend of $2.00 per share.If the required return on this preferred stock is 6.5%,then at what price should the stock sell?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

A stock is expected to pay a year-end dividend of $2.00,i.e. ,D₁ = $2.00.The dividend is expected to decline at a rate of 5% a year forever (g = -5%) .If the company is in equilibrium and its expected and required rate of return is 15%,then which of the following statements is CORRECT?

Correct Answer
verified

Correct Answer
verified

Reddick Enterprises' stock currently sells for $24.50 per share.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock,r_s,is 9.00%.What is the stock's expected price 3 years from today?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A stock is expected to pay a dividend of $0.75 at the end of the year.The required rate of return is r_s = 10.5%,and the expected constant growth rate is g = 8.2%.What is the stock's current price?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Whited Inc.'s stock currently sells for $35.25 per share.The dividend is projected to increase at a constant rate of 5.25% per year.The required rate of return on the stock,r_s,is 11.50%.What is the stock's expected price 5 years from now?

Correct Answer
verified

Correct Answer
verified