Question 1

One can estimate the expected rate of return or the cost of equity capital as follows:

Accepted Answer

A) Dividend yield - expected rate of growth in dividends. 
B) Dividend yield + expected rate of growth in dividends. 
C) Dividend yield/expected rate of growth in dividends. 
D) (Dividend yield)× (expected rate of growth in dividends). 
A) Dividend yield - expected rate of growth in dividends. 
B) Dividend yield + expected rate of growth in dividends. 
C) Dividend yield/expected rate of growth in dividends. 
D) (Dividend yield)× (expected rate of growth in dividends).

Question 2

If a Wall Street Journal quotation for a company has the values Close = 55.14 and Net change = +1.04, then what was the closing price for the stock for the previous trading day?

Accepted Answer

A) $56.18 
B) $54.10 
C) $55.66 
D) $53.02 
A) $56.18 
B) $54.10 
C) $55.66 
D) $53.02

Question 3

Which of the following stocks is a growth stock?

Accepted Answer

A) Dow Chemical 
B) Consolidated Edison 
C) General Electric 
D) Alphabet 
A) Dow Chemical 
B) Consolidated Edison 
C) General Electric 
D) Alphabet

Question 4

The constant growth formula for stock valuation does not work for a firm with a negative growth rate (i.e., a declining growth rate)in its dividend.

Accepted Answer

A) True 
 B)False

Question 5

Briefly explain why Microsoft experienced a significant drop in price when it announced its first-ever regular dividend along with huge profits.

Accepted Answer

Under the concept of PVGO, Microsoft was

Question 6

MJ Co. pays out 60 percent of its earnings as dividends. Its return on equity is 15 percent. What is the stable dividend growth rate for the firm?

Accepted Answer

A) 9 percent 
B) 5 percent 
C) 6 percent 
D) 15 percent 
A) 9 percent 
B) 5 percent 
C) 6 percent 
D) 15 percent

Question 7

Summer Co. expects to pay a dividend of $4.00 per share-one year from now-out of earnings of $7.50 per share. If the required rate of return on the stock is 15 percent and its dividends are growing at a constant rate of 10 percent per year, calculate the present value of growth opportunities for the stock (PVGO).

Accepted Answer

A) $80 
B) $30 
C) $50 
D) $26 
A) $80 
B) $30 
C) $50 
D) $26

Question 8

Explain the term secondary market.

Accepted Answer

When already issued stocks are

Question 9

Company X has a P/E ratio of 10 and a stock price of $50 per share. Calculate earnings per share of the company.

Accepted Answer

A) $6 per share 
B) $10 per share 
C) $0.20 per share 
D) $5 per share 
A) $6 per share 
B) $10 per share 
C) $0.20 per share 
D) $5 per share

Question 10

Lake Co. just paid a dividend of $3 per share out of earnings of $5 per share. If its book value per share is $40, what is the expected growth rate in dividends?

Accepted Answer

A) 7.5 percent 
B) 8 percent 
C) 12.5 percent 
D) 5 percent 
A) 7.5 percent 
B) 8 percent 
C) 12.5 percent 
D) 5 percent

Question 11

The major secondary market for Boeing shares is:

Accepted Answer

A) London Stock Exchange. 
B) New York Stock Exchange. 
C) Hang Seng. 
D) Tokyo Stock Exchange. 
A) London Stock Exchange. 
B) New York Stock Exchange. 
C) Hang Seng. 
D) Tokyo Stock Exchange.

Question 12

The return that is expected by investors from a common stock is also called its market capitalization rate, or cost of equity capital.

Accepted Answer

A) True 
 B)False

Question 13

The following is an example of a dealer market:

Accepted Answer

A) New York Stock Exchange 
B) London Stock Exchange 
C) Tokyo Stock Exchange 
D) Nasdaq 
A) New York Stock Exchange 
B) London Stock Exchange 
C) Tokyo Stock Exchange 
D) Nasdaq

Question 14

Super Computer Company's stock is selling for $100 per share today. It is expected that-at the end of one year-it will pay a dividend of $6 per share and then be sold for $114 per share. Calculate the expected rate of return for the shareholders.

Accepted Answer

A) 20 percent 
B) 15 percent 
C) 10 percent 
D) 25 percent 
A) 20 percent 
B) 15 percent 
C) 10 percent 
D) 25 percent

Question 15

Generally, high growth stocks pay

Accepted Answer

A) low or no dividends. 
B) high, steadily growing dividends. 
C) erratic dividends. 
D) decreasing dividends. 
A) low or no dividends. 
B) high, steadily growing dividends. 
C) erratic dividends. 
D) decreasing dividends.

Question 16

Most exchange traded funds are not actively managed.

Accepted Answer

A) True 
 B)False

Question 17

Briefly explain how the formulas that are used for valuing common stocks can also be used to value businesses.

Accepted Answer

The formulas that are used to value comm

Question 18

The constant dividend growth formula P0 = Div1/(r - g)assumes

Accepted Answer

A) that dividends grow at a constant rate g, forever only. 
B) r > g only. 
C) that dividends grow at a constant rate g, forever, and r > g only. 
D) g is never negative only. 
A) that dividends grow at a constant rate g, forever only. 
B) r > g only. 
C) that dividends grow at a constant rate g, forever, and r > g only. 
D) g is never negative only.

Question 19

One can use the discounted cash flow formulas that are used to value common stocks in order to value entire businesses.

Accepted Answer

A) True 
 B)False

Question 20

Briefly explain the major types of exchanges prevalent in the United States.

Accepted Answer

There are two types of exchanges prevale

Exam 4: The Value of Common Stocks

One can estimate the expected rate of return or the cost of equity capital as follows:

If a Wall Street Journal quotation for a company has the values Close = 55.14 and Net change = +1.04, then what was the closing price for the stock for the previous trading day?

Which of the following stocks is a growth stock?

The constant growth formula for stock valuation does not work for a firm with a negative growth rate (i.e., a declining growth rate)in its dividend.

Briefly explain why Microsoft experienced a significant drop in price when it announced its first-ever regular dividend along with huge profits.

MJ Co. pays out 60 percent of its earnings as dividends. Its return on equity is 15 percent. What is the stable dividend growth rate for the firm?

Explain the term secondary market.

Company X has a P/E ratio of 10 and a stock price of $50 per share. Calculate earnings per share of the company.

Lake Co. just paid a dividend of $3 per share out of earnings of $5 per share. If its book value per share is $40, what is the expected growth rate in dividends?

The major secondary market for Boeing shares is:

The return that is expected by investors from a common stock is also called its market capitalization rate, or cost of equity capital.

The following is an example of a dealer market:

Super Computer Company's stock is selling for $100 per share today. It is expected that-at the end of one year-it will pay a dividend of $6 per share and then be sold for $114 per share. Calculate the expected rate of return for the shareholders.

Generally, high growth stocks pay

Most exchange traded funds are not actively managed.

Briefly explain how the formulas that are used for valuing common stocks can also be used to value businesses.

The constant dividend growth formula P0 = Div1/(r - g)assumes

One can use the discounted cash flow formulas that are used to value common stocks in order to value entire businesses.

Briefly explain the major types of exchanges prevalent in the United States.

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters

The constant dividend growth formula P₀ = Div₁/(r - g)assumes