SAMPLE
TEST - CHAPTER 9
1. Two firms with the same dividend and growth rate must also have the same
stock price.
a. True
b. False
2. You are considering buying common stock in Grow On, Inc. The firm yesterday paid a dividend of $8.00. You have projected that dividends will grow at a rate of 10.0% per year indefinitely. The firm's beta is 1.93, the risk-free rate is 7.0%, and the market return is 15.9%. What is the most you should pay for the stock now?
a. $56.42
b. $62.06
c. $33.09
d. $36.39
e. $88.88
3. You are considering buying common stock in Grow On, Inc. You have projected that the next dividend the company will pay will equal $6.30 and that dividends will grow at a rate of 8.0% per year thereafter. If you would want an annual return of 12.0% to invest in this stock, what is the most you should pay for the stock now?
a. $56.70
b. $170.10
c. $52.50
d. $157.50
e. $172.08
4. Stability Inc has maintained a dividend payment of $4 per share for many years, and the same dividend payment is expected to be paid in future years. In investors require a 12% rate of return on similar investments, determine the appropriate price of the company's stock.
a. $15.00
b. $30.00
c. $33.33
d. $35.00
e. $40.00 5. Johnston
Corporation's stock is currently selling at $45.83 per share. The last
dividend paid (D0) was $2.50. Johnson is a constant growth
firm. If investors require a return of 16% on Johnson's stock, what do
they think Johnson's growth rate will be? a. 6% b. 7% c. 8% d. 9% e. 10%
a. $74.72
b. $68.59 c. $79.62
d. $91.94
e. $100.74 a. True
b. False a. 4%; 10%; 14.5% b. 4%; 10%; 14% c. 10%; 4.5%; 14.5% d. 4.5%; 10%; 14.5% 9. The
price
of a stock is: a. the future
value of all expected future dividends, discounted at the dividend growth rate.
b. the present
value of all expected future dividends, discounted at the dividend growth rate.
c. the future
value of all expected future dividends, discounted at the investor’s required
return. d. the present
value of all expected future dividends, discounted at the investor’s required
return. a. marginal value
b. equilibrium
c. realized value
d. required value
a. Bondholders
b. Preferred
stockholders c. Creditors
d. Common
stockholders a. $30.25
b. $59.86
c. $28.27
d. $55.94
e. $89.12
6. Growing, Inc. is a firm that is experiencing rapid growth. The firm
yesterday paid a dividend of $6.80. You believe that dividends will grow at a
rate of 20% per year for years 1, 2 and 3, and then at a rate of 9.0% per year thereafter. If you expect an annual
rate of return of 23.0% on this investment, what is the most you would pay for
the stock now?
7. When investing in overseas stocks, it possible that the foreign
stocks in
their local market could outperform U.S. stocks (in percentage return), yet you
could still have a lower actual return on the foreign stock when measured in
dollars.
8. You just paid $28 to buy one share of WWE stock, and you expect to receive
a dividend payment of $1.26 at the end of the first year. You also expect
to sell the stock in one year for $30.80. Assuming your expectations are
correct, which of the following accurately describes your a) dividend yield, b)
capital gains yield and c) total return from owning WWE stock for one year?
10. The condition under which the expected return on a security is
just equal
to its required return is:
11. ___________ have control of the firm since they have the right to
elect a
firm’s directors.
12. You are considering buying common stock in Grow On, Inc. You have
projected that the next dividend the company will pay will equal $4.00 and that
dividends will grow at a rate of 7.0% per year thereafter. The firm's beta is
1.75, the risk-free rate is 7.5%, and the market return is 11.3%. What is the
most you should pay for the stock now?