Question 1

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) D) and E)
G) A) and E)

Question 2

Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25) .The stock sells for $27.50 per share,and its required rate of return is 10.5%.The dividend is expected to grow at some constant rate,g,forever.What is the equilibrium expected growth rate?

Accepted Answer

A)   6.01%
B)   5.54%
C)   6.07%
D)   6.91%
E)   5.95%F) C) and D)
G) A) and D)

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)   Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income,but not to the proceeds in 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 C)
G) B) and E)

Question 4

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) A) and E)
G) A) and B)

Question 5

If markets are in equilibrium,which of the following conditions will exist?

Accepted Answer

A)   Each stock's expected return should equal its realized return as seen by the marginal investor.
B)   Each stock's expected return should equal its required return as seen by the marginal investor.
C)   All stocks should have the same expected return as seen by the marginal investor.
D)   The expected and required returns on stocks and bonds should be equal.
E)   All stocks should have the same realized return during the coming year.F) A) and E)
G) C) and E)

Question 6

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 this investor's required return.

Accepted Answer

A) True 
 B)False

Question 7

Based on the corporate valuation model,Gray Entertainment's total corporate value is $1,150 million.The company's balance sheet shows $120 million of notes payable,$300 million of long-term debt,$50 million of preferred stock,$180 million of retained earnings,and $800 million of total common equity.If the company has 30 million shares of stock outstanding,what is the best estimate of its price per share?

Accepted Answer

A)   $22.44
B)   $17.68
C)   $22.67
D)   $18.81
E)   $26.07F) A) and E)
G) All of the above

Question 8

An increase in a firm's expected growth rate would cause its required rate of return to

Accepted Answer

A)   increase.
B)   decrease.
C)   fluctuate less than before.
D)   fluctuate more than before.
E)   possibly increase,possibly decrease,or possibly remain constant.F) C) and E)
G) B) and E)

Question 9

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%,this implies that 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 D)
G) A) and D)

Exam 9: Stocks and Their Valuation

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
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Correct Answer
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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
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Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D₁ = $1.25) .The stock sells for $27.50 per share,and its required rate of return is 10.5%.The dividend is expected to grow at some constant rate,g,forever.What is the equilibrium expected growth rate?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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If markets are in equilibrium,which of the following conditions will exist?

Correct Answer
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An increase in a firm's expected growth rate would cause its required rate of return to

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 this investor's required return.

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Exam 9: Stocks and Their Valuation

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

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

Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25) .The stock sells for $27.50 per share,and its required rate of return is 10.5%.The dividend is expected to grow at some constant rate,g,forever.What is the equilibrium expected growth rate?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

If markets are in equilibrium,which of the following conditions will exist?

Correct AnswerverifiedShow Answer

An increase in a firm's expected growth rate would cause its required rate of return to

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 this investor's required return.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct Answer
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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

Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D₁ = $1.25) .The stock sells for $27.50 per share,and its required rate of return is 10.5%.The dividend is expected to grow at some constant rate,g,forever.What is the equilibrium expected growth rate?

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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