Question 1

Martha's Vineyard recently paid a $3.60 annual dividend on its common stock.This dividend increases at an average rate of 3.5% per year.The stock is currently selling for $62.10 a share.What is the market rate of return?

Accepted Answer

A)  2.5%
B)  3.5%
C)  5.5%
D)  6.0%
E)  9.5%F) D) and E)
G) A) and B)

Question 2

Can't Hold Me Back, Inc.is preparing to pay its first dividends.It is going to pay $1.00, $2.50, and $5.00 a share over the next three years, respectively.After that, the company has stated that the annual dividend will be $1.25 per share indefinitely.What is this stock worth to you per share if you demand a 7% rate of return?

Accepted Answer

A)  $7.20
B)  $14.48
C)  $18.88
D)  $21.78
E)  $25.06F) B) and C)
G) None of the above

Question 3

Majestic Homes' stock traditionally provides an 8% rate of return.The company just paid a $2 a year dividend which is expected to increase by 5% per year.If you are planning on buying 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 9% at the time of your purchase?

Accepted Answer

A)  $48.60
B)  $52.50
C)  $55.13
D)  $57.89
E)  $70.00F) B) and E)
G) B) and D)

Question 4

Last week, Railway Cabooses paid its annual dividend of $1.20 per share.The company has been reducing the dividends by 10% each year.How much are you willing to pay to purchase stock in this company if your required rate of return is 14%?

Accepted Answer

A)  $4.50
B)  $7.71
C)  $10.80
D)  $15.60
E)  $27.00F) A) and E)
G) B) and D)

Question 5

Bet'R Bilt Bikes just announced that its annual dividend for this coming year will be $2.42 a share and that all future dividends are expected to increase by 2.5% annually.What is the market rate of return if this stock is currently selling for $22 a share?

Accepted Answer

A)  9.5%
B)  11.0%
C)  12.5%
D)  13.5%
E)  15.0%F) A) and B)
G) A) and C)

Question 6

Fred Flintlock wants to earn a total of 10% on his investments.He recently purchased shares of ABC stock at a price of $20 a share.The stock pays a $1 a year dividend.The price of ABC stock needs to _____ if Fred is to achieve his 10% rate of return.

Accepted Answer

A)  remain constant
B)  decrease by 5%
C)  increase by 5%
D)  increase by 10%
E)  increase by 15%F) A) and D)
G) A) and E)

Question 7

Next year's annual dividend divided by the current stock price is called the:

Accepted Answer

A)  yield to maturity.
B)  total yield.
C)  dividend yield.
D)  capital gains yield.
E)  earnings yield.F) A) and B)
G) A) and C)

Question 8

Weisbro and Sons' common stock sells for $21 a share and pays an annual dividend that increases by 5% annually.The market rate of return on this stock is 9%.What is the amount of the last dividend paid by Weisbro and Sons?

Accepted Answer

A)  $.77
B)  $.80
C)  $.84
D)  $.87
E)  $.88F) A) and C)
G) C) and D)

Question 9

How much are you willing to pay for one share of stock if the company just paid an $.80 annual dividend, the dividends increase by 4% annually and you require an 8% rate of return?

Accepted Answer

A)  $19.23
B)  $20.00
C)  $20.40
D)  $20.80
E)  $21.63F) A) and D)
G) B) and C)

Question 10

Shares of common stock of the Samson Co.offer an expected total return of 12%.The dividend is increasing at a constant 8% per year.The dividend yield must be:

Accepted Answer

A)  -4%.
B)  4%.
C)  8%.
D)  12%.
E)  20%.F) A) and B)
G) B) and C)

Question 11

Latcher's Inc.is a relatively new firm that is still in a period of rapid development.The company plans on retaining all of its earnings for the next six years.Seven years from now, the company projects paying an annual dividend of $.25 a share and then increasing that amount by 3% annually thereafter.To value this stock as of today, you would most likely determine the value of the stock _____ years from today before determining today's value.

Accepted Answer

A)  4
B)  5
C)  6
D)  7
E)  8F) A) and D)
G) B) and D)

Question 12

A form of equity which receives no preferential treatment in either the payment of dividends or in bankruptcy distributions is called _____ stock.

Accepted Answer

A)  dual class
B)  cumulative
C)  deferred
D)  preferred
E)  commonF) None of the above
G) All of the above

Question 13

A stock you are interested in paid a dividend of $1 last month.The anticipated growth rate in dividends and earnings is 25% for the next 2 years before settling down to a constant 5% growth rate.The discount rate is 12%.Calculate the expected price of the stock.

Accepted Answer

A)  $15.38
B)  $20.50
C)  $21.04
D)  $22.27
E)  $26.14F) B) and E)
G) All of the above

Question 14

The underlying assumption of the dividend growth model is that a stock is worth:

Accepted Answer

A)  the same amount to every investor regardless of their desired rate of return.
B)  the present value of the future income which the stock generates.
C)  an amount computed as the next annual dividend divided by the market rate of return.
D)  the same amount as any other stock that pays the same current dividend and has the same required rate of return.
E)  an amount computed as the next annual dividend divided by the required rate of return.F) A) and B)
G) A) and C)

Question 15

Now or Later, Inc.recently paid $1.10 as an annual dividend.Future dividends are projected at $1.14, $1.18, $1.22, and $1.25 over the next four years, respectively.After that, the dividend is expected to increase by 2% annually.What is one share of this stock worth to you if you require an 8% rate of return on similar investments?

Accepted Answer

A)  $15.62
B)  $19.57
C)  $21.21
D)  $23.33
E)  $25.98F) B) and E)
G) C) and E)

Question 16

The Bell Weather Co.is a new firm in a rapidly growing industry.The company is planning on increasing its annual dividend by 20% a year for the next four years and then decreasing the growth rate to 5% per year.The company just paid its annual dividend in the amount of $1.00 per share.What is the current value of one share if the required rate of return is 9.25%?

Accepted Answer

A)  $35.63
B)  $38.19
C)  $41.05
D)  $43.19
E)  $45.81F) B) and E)
G) D) and E)

Question 17

The value of common stock today depends on:

Accepted Answer

A)  the expected future holding period and the discount rate.
B)  the expected future dividends and the capital gains.
C)  the expected future dividends, capital gains and the discount rate.
D)  the expected future holding period and capital gains.
E)  None of the above.F) C) and D)
G) A) and D)

Question 18

A stock pays a constant annual dividend and sells for $31.11 a share.If the dividend yield of this stock is 9%, what is the dividend amount?

Accepted Answer

A)  $1.40
B)  $1.80
C)  $2.20
D)  $2.40
E)  $2.80F) C) and D)
G) A) and D)

Question 19

The constant dividend growth model:
I.assumes that dividends increase at a constant rate forever.
II.can be used to compute a stock price at any point of time.
III.states that the market price of a stock is only affected by the amount of the dividend.
IV.considers capital gains but ignores the dividend yield.

Accepted Answer

A)  I only
B)  II only
C)  III and IV only
D)  I and II only
E)  I, II, and III onlyF) A) and C)
G) B) and E)

Question 20

Mother and Daughter Enterprises is a relatively new firm that appears to be on the road to great success.The company paid its first annual dividend yesterday in the amount of $.28 a share.The company plans to double each annual dividend payment for the next three years.After that time, it is planning on paying a constant $1.50 per share indefinitely.What is one share of this stock worth today if the market rate of return on similar securities is 11.5%?

Accepted Answer

A)  $9.41
B)  $11.40
C)  $11.46
D)  $11.93
E)  $12.43F) D) and E)
G) All of the above

Exam 9: Stock Valuation

Bet'R Bilt Bikes just announced that its annual dividend for this coming year will be $2.42 a share and that all future dividends are expected to increase by 2.5% annually.What is the market rate of return if this stock is currently selling for $22 a share?

Correct Answer
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A form of equity which receives no preferential treatment in either the payment of dividends or in bankruptcy distributions is called _____ stock.

Correct Answer
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Correct Answer
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Next year's annual dividend divided by the current stock price is called the:

Correct Answer
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A stock pays a constant annual dividend and sells for $31.11 a share.If the dividend yield of this stock is 9%, what is the dividend amount?

Correct Answer
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Correct Answer
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Fred Flintlock wants to earn a total of 10% on his investments.He recently purchased shares of ABC stock at a price of $20 a share.The stock pays a $1 a year dividend.The price of ABC stock needs to _____ if Fred is to achieve his 10% rate of return.

Correct Answer
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The underlying assumption of the dividend growth model is that a stock is worth:

Correct Answer
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Correct Answer
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The value of common stock today depends on:

Correct Answer
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Correct Answer
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Shares of common stock of the Samson Co.offer an expected total return of 12%.The dividend is increasing at a constant 8% per year.The dividend yield must be:

Correct Answer
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A stock you are interested in paid a dividend of $1 last month.The anticipated growth rate in dividends and earnings is 25% for the next 2 years before settling down to a constant 5% growth rate.The discount rate is 12%.Calculate the expected price of the stock.

Correct Answer
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Weisbro and Sons' common stock sells for $21 a share and pays an annual dividend that increases by 5% annually.The market rate of return on this stock is 9%.What is the amount of the last dividend paid by Weisbro and Sons?

Correct Answer
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Correct Answer
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Martha's Vineyard recently paid a $3.60 annual dividend on its common stock.This dividend increases at an average rate of 3.5% per year.The stock is currently selling for $62.10 a share.What is the market rate of return?

Correct Answer
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Correct Answer
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Last week, Railway Cabooses paid its annual dividend of $1.20 per share.The company has been reducing the dividends by 10% each year.How much are you willing to pay to purchase stock in this company if your required rate of return is 14%?

Correct Answer
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How much are you willing to pay for one share of stock if the company just paid an $.80 annual dividend, the dividends increase by 4% annually and you require an 8% rate of return?

Correct Answer
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Correct Answer
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Exam 9: Stock Valuation

Bet'R Bilt Bikes just announced that its annual dividend for this coming year will be $2.42 a share and that all future dividends are expected to increase by 2.5% annually.What is the market rate of return if this stock is currently selling for $22 a share?

Correct AnswerverifiedShow Answer

A form of equity which receives no preferential treatment in either the payment of dividends or in bankruptcy distributions is called _____ stock.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Next year's annual dividend divided by the current stock price is called the:

Correct AnswerverifiedShow Answer

A stock pays a constant annual dividend and sells for $31.11 a share.If the dividend yield of this stock is 9%, what is the dividend amount?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Fred Flintlock wants to earn a total of 10% on his investments.He recently purchased shares of ABC stock at a price of $20 a share.The stock pays a $1 a year dividend.The price of ABC stock needs to _____ if Fred is to achieve his 10% rate of return.

Correct AnswerverifiedShow Answer

The underlying assumption of the dividend growth model is that a stock is worth:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The value of common stock today depends on:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Shares of common stock of the Samson Co.offer an expected total return of 12%.The dividend is increasing at a constant 8% per year.The dividend yield must be:

Correct AnswerverifiedShow Answer

A stock you are interested in paid a dividend of $1 last month.The anticipated growth rate in dividends and earnings is 25% for the next 2 years before settling down to a constant 5% growth rate.The discount rate is 12%.Calculate the expected price of the stock.

Correct AnswerverifiedShow Answer

Weisbro and Sons' common stock sells for $21 a share and pays an annual dividend that increases by 5% annually.The market rate of return on this stock is 9%.What is the amount of the last dividend paid by Weisbro and Sons?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Martha's Vineyard recently paid a $3.60 annual dividend on its common stock.This dividend increases at an average rate of 3.5% per year.The stock is currently selling for $62.10 a share.What is the market rate of return?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Last week, Railway Cabooses paid its annual dividend of $1.20 per share.The company has been reducing the dividends by 10% each year.How much are you willing to pay to purchase stock in this company if your required rate of return is 14%?

Correct AnswerverifiedShow Answer

How much are you willing to pay for one share of stock if the company just paid an $.80 annual dividend, the dividends increase by 4% annually and you require an 8% rate of return?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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