Question 1

What is the value of the expected dividend per share for a stock that has a required return of 16%, a price of $45, and a constant-growth rate of 12%?

Accepted Answer

A)   $1.80
B)   $3.60
C)   $4.50
D)  $7.20

Question 2

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.

Question 3

A stock currently sells for $50 per share, has an expected return of 15%, and an expected capital appreciation rate of 10%. What is the amount of the expected dividend?

Accepted Answer

A)   $2.50
B)   $2.75
C)   $3.00
D)  $3.50

Question 4

What should you pay for a stock if next year's annual dividend is forecast to be $5.25, the constant-growth rate is 2.85%, and you require a 15.5% rate of return?

Accepted Answer

A)   $31.25
B)   $38.87
C)   $41.50
D)  $42.68

Question 5

What is the expected constant-growth rate of dividends for a stock with a current price of $87, an expected dividend payment of $5.40 per share, and a required return of 16%?

Accepted Answer

A)   8.48%
B)   6.25%
C)   9.79%
D)  5.23%

Question 6

Technical analysts are most likely to be successful in a market that is considered to be:

Accepted Answer

A)   semistrong-form efficient.
B)   strong-form efficient.
C)   less than weak-form efficient.
D)  a random walk.

Question 7

The dividend discount model indicates that the value of a stock is the present value of the dividends it will pay over the investor's horizon, plus the present value of the expected stock price at the end of that horizon.

Accepted Answer

A) True 
 B)False

Question 8

Reinvesting earnings into a firm will not increase the stock price unless:

Accepted Answer

A)   the new paradigm of stock pricing is maintained.
B)   true depreciation is less than reported depreciation.
C)   the firm's dividends are growing also.
D)  the ROE of new investments exceeds the firm's required return.

Question 9

It is possible to ignore cash dividends that occur far into the future when using a dividend discount model because those dividends:

Accepted Answer

A)   will most likely be paid to a different investor.
B)   will most likely not be paid.
C)   have an insignificant present value.
D)  have a minimal, if any, potential rate of growth.

Question 10

Market efficiency implies that security prices impound new information quickly.

Accepted Answer

A) True 
 B)False

Question 11

How can you reconcile the fact that whether an investor favors dividends or capital gains, the investor should accept the dividend discount model as a determination of share value?

Accepted Answer

The first fact to be recognized is that ...

Question 12

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

Accepted Answer

A)   Market value
B)   Book value
C)   Liquidation value
D)  Both market and book values

Question 13

What should be the current price of a share of stock if a $5 dividend was just paid, the stock has a required return of 20%, and a constant dividend growth rate of 6%?

Accepted Answer

A)   $19.23
B)   $25.00
C)   $35.71
D)  $37.86

Question 14

When valuing stock with the dividend discount model, the present value of future dividends will:

Accepted Answer

A)   change depending on the time horizon selected.
B)   remain constant regardless of the time horizon selected.
C)   remain constant regardless of the rate of growth.
D)  always equal the present value of the terminal price.

Question 15

What price would you pay today for a stock if you require a rate of return of 13%, the dividend growth rate is 3.6%, and the firm recently paid an annual dividend of $2.50?

Accepted Answer

A)   $27.55
B)   $30.28
C)   $26.60
D)  $31.37

Question 16

An example that specifically contradicts strong-form market efficiency in U.S. stock markets is that:

Accepted Answer

A)   excess profits are observed in cases of insider trading.
B)   stock prices follow predictable patterns within each month.
C)   random-walk behavior is reliable.
D)  fundamental analysts outperform the S&P 500.

Question 17

What should be the stock value one year from today for a stock that currently sells for $35, has a required return of 15%, an expected dividend of $2.80, and a constant dividend growth rate of 7%?

Accepted Answer

A)   $37.45
B)   $37.80
C)   $40.25
D)  $43.05

Question 18

A positive value for PVGO suggests that the firm has:

Accepted Answer

A)   a positive return on equity.
B)   a positive plowback ratio.
C)   investment opportunities with superior returns.
D)  a high rate of constant growth.

Question 19

The study of published financial information on a company in order to make investment decisions is known as:

Accepted Answer

A)   technical analysis.
B)   fundamental analysis.
C)   efficiency analysis.
D)  random pricing analysis.

Question 20

In the calculation of rates of return on common stock, dividends are _______ and capital gains are ______.

Accepted Answer

A)   guaranteed; not guaranteed
B)   guaranteed; guaranteed
C)   not guaranteed; not guaranteed
D)  not guaranteed; guaranteed

Exam 7: Valuing Stocks

What should be the stock value one year from today for a stock that currently sells for $35, has a required return of 15%, an expected dividend of $2.80, and a constant dividend growth rate of 7%?

Correct AnswerverifiedShow Answer

A stock currently sells for $50 per share, has an expected return of 15%, and an expected capital appreciation rate of 10%. What is the amount of the expected dividend?

Correct AnswerverifiedShow Answer

What price would you pay today for a stock if you require a rate of return of 13%, the dividend growth rate is 3.6%, and the firm recently paid an annual dividend of $2.50?

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Technical analysts are most likely to be successful in a market that is considered to be:

Correct AnswerverifiedShow Answer

How can you reconcile the fact that whether an investor favors dividends or capital gains, the investor should accept the dividend discount model as a determination of share value?

Correct AnswerverifiedThe first fact to be recognized is that ...View AnswerShow Answer

What is the expected constant-growth rate of dividends for a stock with a current price of $87, an expected dividend payment of $5.40 per share, and a required return of 16%?

Correct AnswerverifiedShow Answer

Reinvesting earnings into a firm will not increase the stock price unless:

Correct AnswerverifiedShow Answer

When valuing stock with the dividend discount model, the present value of future dividends will:

Correct AnswerverifiedShow Answer

What should be the current price of a share of stock if a $5 dividend was just paid, the stock has a required return of 20%, and a constant dividend growth rate of 6%?

Correct AnswerverifiedShow Answer

What is the value of the expected dividend per share for a stock that has a required return of 16%, a price of $45, and a constant-growth rate of 12%?

Correct AnswerverifiedShow Answer

Market efficiency implies that security prices impound new information quickly.

Correct AnswerverifiedShow Answer

An example that specifically contradicts strong-form market efficiency in U.S. stock markets is that:

Correct AnswerverifiedShow Answer

In the calculation of rates of return on common stock, dividends are _______ and capital gains are ______.

Correct AnswerverifiedShow Answer

It is possible to ignore cash dividends that occur far into the future when using a dividend discount model because those dividends:

Correct AnswerverifiedShow Answer

The study of published financial information on a company in order to make investment decisions is known as:

Correct AnswerverifiedShow Answer

The dividend discount model indicates that the value of a stock is the present value of the dividends it will pay over the investor's horizon, plus the present value of the expected stock price at the end of that horizon.

Correct AnswerverifiedShow Answer

A positive value for PVGO suggests that the firm has:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What should you pay for a stock if next year's annual dividend is forecast to be $5.25, the constant-growth rate is 2.85%, and you require a 15.5% rate of return?

Correct AnswerverifiedShow Answer

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The first fact to be recognized is that ...
View Answer

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In the calculation of rates of return on common stock, dividends are _ and capital gains are .

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