Question 1

Winston Co.has a dividend-paying stock with a total return for the year of -6.5 percent.Which one of the following must be true?

Accepted Answer

A) The dividend must be constant. 
B) The stock has a negative capital gains yield. 
C) The dividend yield must be zero. 
D) The required rate of return for this stock increased over the year. 
E) The firm is experiencing supernormal growth. 
A) The dividend must be constant. 
B) The stock has a negative capital gains yield. 
C) The dividend yield must be zero. 
D) The required rate of return for this stock increased over the year. 
E) The firm is experiencing supernormal growth.

Question 2

The 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 in time.
III.can be used to value zero-growth stocks.
IV.requires the growth rate to be less than the required return.

Accepted Answer

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

Question 3

Explain why small shareholders should prefer cumulative voting over straight voting.

Accepted Answer

With straight voting, a shareholder must

Question 4

KL Airlines paid an annual dividend of $1.18 a share last month.The company is planning on paying $1.50, $1.75, and $1.80 a share over the next 3 years, respectively.After that, the dividend will be constant at $1.50 per share per year.What is the market price of this stock if the market rate of return is 10.5 percent?

Accepted Answer

A) $13.98 
B) $14.07 
C) $14.71 
D) $17.16 
E) $18.10 
A) $13.98 
B) $14.07 
C) $14.71 
D) $17.16 
E) $18.10

Question 5

An agent who maintains an inventory from which he or she buys and sells securities is called a:

Accepted Answer

A) broker. 
B) trader. 
C) capitalist. 
D) principal. 
E) dealer. 
A) broker. 
B) trader. 
C) capitalist. 
D) principal. 
E) dealer.

Question 6

What is the model called that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?

Accepted Answer

A) zero growth 
B) dividend growth 
C) capital pricing 
D) earnings capitalization 
E) discounted dividend 
A) zero growth 
B) dividend growth 
C) capital pricing 
D) earnings capitalization 
E) discounted dividend

Question 7

Big Falls Tours just paid a dividend of $1.55 per share.The dividends are expected to grow at 30 percent for the next 8 years and then level off to a 6 percent growth rate indefinitely.What is the price of this stock today given a required return of 15 percent?

Accepted Answer

A) $67.54 
B) $69.90 
C) $70.47 
D) $71.07 
E) $78.19 
A) $67.54 
B) $69.90 
C) $70.47 
D) $71.07 
E) $78.19

Question 8

How much are you willing to pay for one share of Jumbo Trout stock if the company just paid a $0.70 annual dividend, the dividends increase by 2.5 percent annually, and you require a 10 percent rate of return?

Accepted Answer

A) $9.29 
B) $9.33 
C) $9.57 
D) $9.53 
E) $9.59 
A) $9.29 
B) $9.33 
C) $9.57 
D) $9.53 
E) $9.59

Question 9

Which one of the following statements currently applies to a NYSE broker?

Accepted Answer

A) owns a "seat" on the exchange 
B) buys at the bid price 
C) remains at his or her specified post 
D) matches customer buy and sell orders 
E) trades for his or her personal account 
A) owns a "seat" on the exchange 
B) buys at the bid price 
C) remains at his or her specified post 
D) matches customer buy and sell orders 
E) trades for his or her personal account

Question 10

Answer this question based on the dividend growth model.If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:

Accepted Answer

A) an increase in all stock values. 
B) all stock values to remain constant. 
C) a decrease in all stock values. 
D) dividend-paying stocks to maintain a constant price while non-dividend paying stocks decrease in value. 
E) dividend-paying stocks to increase in price while non-dividend paying stocks decrease in value. 
A) an increase in all stock values. 
B) all stock values to remain constant. 
C) a decrease in all stock values. 
D) dividend-paying stocks to maintain a constant price while non-dividend paying stocks decrease in value. 
E) dividend-paying stocks to increase in price while non-dividend paying stocks decrease in value.

Question 11

The Farmer's Market just paid an annual dividend of $5 on its stock.The growth rate in dividends is expected to be a constant 5 percent per year indefinitely.Investors require a 13 percent return on the stock for the first 3 years, a 9 percent return for the next 3 years, a 7 percent return thereafter.What is the current price per share?

Accepted Answer

A) $212.40 
B) $220.54 
C) $223.09 
D) $226.84 
E) $227.50 
A) $212.40 
B) $220.54 
C) $223.09 
D) $226.84 
E) $227.50

Question 12

Using the dividend growth model, explain why a firm would be hesitant to reduce the growth rate of its dividends.

Accepted Answer

The dividend growth model states that P_t

Question 13

Morristown Industries has an issue of preferred stock outstanding that pays a $12.60 dividend every year in perpetuity.What is the required return if this issue currently sells for $80 per share?

Accepted Answer

A) 15.75 percent 
B) 16.72 percent 
C) 16.80 percent 
D) 16.86 percent 
E) 16.95 percent 
A) 15.75 percent 
B) 16.72 percent 
C) 16.80 percent 
D) 16.86 percent 
E) 16.95 percent

Question 14

Whistle Stop Trains pays a constant $16 dividend on its stock.The company will maintain this dividend for the next 14 years and will then cease paying dividends forever.What is the current price per share if the required return on this stock is 15 percent?

Accepted Answer

A) $77.78 
B) $82.48 
C) $91.59 
D) $106.67 
E) $112.00 
A) $77.78 
B) $82.48 
C) $91.59 
D) $106.67 
E) $112.00

Question 15

Harvey County Choppers, Inc.is experiencing rapid growth.The company expects dividends to grow at 25 percent per year for the next 7 years before leveling off to 7 percent into perpetuity.The required return on the stock is 12 percent.What is the current stock price if the annual dividend share that was just paid was $1.05?

Accepted Answer

A) $60.15 
B) $64.36 
C) $67.37 
D) $72.11 
E) $75.19 
A) $60.15 
B) $64.36 
C) $67.37 
D) $72.11 
E) $75.19

Question 16

An ECN is best described as:

Accepted Answer

A) an electronic network which transmits orders directly to the floor of the NYSE. 
B) the network used in the primary market for selling newly issued shares. 
C) the international trading network of the NYSE. 
D) a website that allows individual investors to trade directly with one another. 
E) a computerized network used by independent brokers. 
A) an electronic network which transmits orders directly to the floor of the NYSE. 
B) the network used in the primary market for selling newly issued shares. 
C) the international trading network of the NYSE. 
D) a website that allows individual investors to trade directly with one another. 
E) a computerized network used by independent brokers.

Question 17

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?

Accepted Answer

A) no dividends for 5 years, then increasing dividends forever 
B) $1 per share annual dividend for 2 years, then $1.25 annual dividends forever 
C) decreasing dividends for 6 years followed by one final liquidating dividend payment 
D) dividends payments which increase by 2, 3, and 4 percent respectively for 3 years followed by a constant dividend thereafter 
E) dividend payments which increase by 10 percent per year for 5 years followed by dividends which increase by 3 percent annually thereafter 
A) no dividends for 5 years, then increasing dividends forever 
B) $1 per share annual dividend for 2 years, then $1.25 annual dividends forever 
C) decreasing dividends for 6 years followed by one final liquidating dividend payment 
D) dividends payments which increase by 2, 3, and 4 percent respectively for 3 years followed by a constant dividend thereafter 
E) dividend payments which increase by 10 percent per year for 5 years followed by dividends which increase by 3 percent annually thereafter

Question 18

Which one of the following represents the capital gains yield as used in the dividend growth model?

Accepted Answer

A) D1 
B) D1/P0 
C) P0 
D) g 
E) g/P0 
A) D1 
B) D1/P0 
C) P0 
D) g 
E) g/P0

Question 19

Which one of the following transactions occurs in the primary market?

Accepted Answer

A) purchase of 500 shares of GE stock from a current shareholder 
B) gift of 100 shares of stock to a charitable organization 
C) gift of 200 shares of stock by a mother to her daughter 
D) a purchase of newly issued stock from AT&T 
E) IBM's purchase of GE stock 
A) purchase of 500 shares of GE stock from a current shareholder 
B) gift of 100 shares of stock to a charitable organization 
C) gift of 200 shares of stock by a mother to her daughter 
D) a purchase of newly issued stock from AT&T 
E) IBM's purchase of GE stock

Question 20

A floor broker on the NYSE does which one of the following?

Accepted Answer

A) supervises the commission brokers for a financial firm 
B) trades for his or her personal inventory 
C) executes orders on behalf of a commission broker 
D) maintains an inventory and takes the role of a specialist 
E) is charged with maintaining a liquid, orderly market 
A) supervises the commission brokers for a financial firm 
B) trades for his or her personal inventory 
C) executes orders on behalf of a commission broker 
D) maintains an inventory and takes the role of a specialist 
E) is charged with maintaining a liquid, orderly market

Winston Co.has a dividend-paying stock with a total return for the year of -6.5 percent.Which one of the following must be true?

The 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 in time. III.can be used to value zero-growth stocks. IV.requires the growth rate to be less than the required return.

Explain why small shareholders should prefer cumulative voting over straight voting.

An agent who maintains an inventory from which he or she buys and sells securities is called a:

What is the model called that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?

Big Falls Tours just paid a dividend of $1.55 per share.The dividends are expected to grow at 30 percent for the next 8 years and then level off to a 6 percent growth rate indefinitely.What is the price of this stock today given a required return of 15 percent?

How much are you willing to pay for one share of Jumbo Trout stock if the company just paid a $0.70 annual dividend, the dividends increase by 2.5 percent annually, and you require a 10 percent rate of return?

Which one of the following statements currently applies to a NYSE broker?

Answer this question based on the dividend growth model.If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:

Using the dividend growth model, explain why a firm would be hesitant to reduce the growth rate of its dividends.

Morristown Industries has an issue of preferred stock outstanding that pays a $12.60 dividend every year in perpetuity.What is the required return if this issue currently sells for $80 per share?

Whistle Stop Trains pays a constant $16 dividend on its stock.The company will maintain this dividend for the next 14 years and will then cease paying dividends forever.What is the current price per share if the required return on this stock is 15 percent?

An ECN is best described as:

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?

Which one of the following represents the capital gains yield as used in the dividend growth model?

Which one of the following transactions occurs in the primary market?

A floor broker on the NYSE does which one of the following?

Introduction to Corporate Finance

Corporate Governance

Financial Statement Analysis

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Bond Valuation

Equity Valuation

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Recent Capital Market History

Return, Risk and the Security Market

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Financial Planning and Management

International Corporate Finance

Behavioural Finance

Financial Risk Management

Options and Corporate Finance

Filters

Exam 8: Net Present Value and Other Investment Criteria

Winston Co.has a dividend-paying stock with a total return for the year of -6.5 percent.Which one of the following must be true?

The 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 in time. III.can be used to value zero-growth stocks. IV.requires the growth rate to be less than the required return.

Explain why small shareholders should prefer cumulative voting over straight voting.

An agent who maintains an inventory from which he or she buys and sells securities is called a:

What is the model called that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?

Big Falls Tours just paid a dividend of $1.55 per share.The dividends are expected to grow at 30 percent for the next 8 years and then level off to a 6 percent growth rate indefinitely.What is the price of this stock today given a required return of 15 percent?

How much are you willing to pay for one share of Jumbo Trout stock if the company just paid a $0.70 annual dividend, the dividends increase by 2.5 percent annually, and you require a 10 percent rate of return?

Which one of the following statements currently applies to a NYSE broker?

Answer this question based on the dividend growth model.If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:

Using the dividend growth model, explain why a firm would be hesitant to reduce the growth rate of its dividends.

Morristown Industries has an issue of preferred stock outstanding that pays a $12.60 dividend every year in perpetuity.What is the required return if this issue currently sells for $80 per share?

Whistle Stop Trains pays a constant $16 dividend on its stock.The company will maintain this dividend for the next 14 years and will then cease paying dividends forever.What is the current price per share if the required return on this stock is 15 percent?

An ECN is best described as:

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?

Which one of the following represents the capital gains yield as used in the dividend growth model?

Which one of the following transactions occurs in the primary market?

A floor broker on the NYSE does which one of the following?

Introduction to Corporate Finance

Corporate Governance

Financial Statement Analysis

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Bond Valuation

Equity Valuation

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Recent Capital Market History

Return, Risk and the Security Market

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Financial Planning and Management

International Corporate Finance

Behavioural Finance

Financial Risk Management

Options and Corporate Finance

Filters