Question 1

If the correlation of prices between two stocks is 0.35,then the price of one stock would be expected to:

Accepted Answer

A)  rise when the other stock price falls. 
B)  rise by 35% when the other stock price is unchanged. 
C)  fall when the other stock price falls. 
D)  fall by 35% when the other stock price is unchanged. 
A)  rise when the other stock price falls. 
B)  rise by 35% when the other stock price is unchanged. 
C)  fall when the other stock price falls. 
D)  fall by 35% when the other stock price is unchanged.

Question 2

Dividends that are expected to be paid far into the future have:

Accepted Answer

A)  great impact on current stock price due to their expected size. 
B)  equal impact on current stock price as near-term dividends. 
C)  lesser impact on current stock price due to discounting. 
D)  no impact on current stock price because they are uncertain. 
A)  great impact on current stock price due to their expected size. 
B)  equal impact on current stock price as near-term dividends. 
C)  lesser impact on current stock price due to discounting. 
D)  no impact on current stock price because they are uncertain.

Question 3

The main purpose of a market-value balance sheet is to:

Accepted Answer

A)  show an inflated value of the firm. 
B)  avoid the recording of certain liabilities. 
C)  value assets and liabilities without GAAP restrictions. 
D)  improve the credit rating of the firm. 
A)  show an inflated value of the firm. 
B)  avoid the recording of certain liabilities. 
C)  value assets and liabilities without GAAP restrictions. 
D)  improve the credit rating of the firm.

Question 4

What are index funds and exchange-traded funds? Why are many investors simply choosing to buy and hold index funds or exchange-traded portfolios (ETFs)that track the entire stock market?

Accepted Answer

Index funds invest in all the stocks in

Question 5

A fundamental analyst:

Accepted Answer

A)  relies on the same information as the technical analyst, but believes in the random walk. 
B)  studies a firm's financial statements to determine pricing inefficiencies. 
C)  believes that the market is strong-form efficient. 
D)  performs an unnecessary function, since markets are efficient. 
A)  relies on the same information as the technical analyst, but believes in the random walk. 
B)  studies a firm's financial statements to determine pricing inefficiencies. 
C)  believes that the market is strong-form efficient. 
D)  performs an unnecessary function, since markets are efficient.

Question 6

Assuming all of the following firms have a required return of 14%,which would you expect to have a positive present value of growth opportunities?

Accepted Answer

A)  A firm with a P/E ratio of 9. 
B)  A firm with a P/E ratio of 6. 
C)  A firm with an E/P ratio of 20%. 
D)  None of these firms are expected to have positive PVGO. 
A)  A firm with a P/E ratio of 9. 
B)  A firm with a P/E ratio of 6. 
C)  A firm with an E/P ratio of 20%. 
D)  None of these firms are expected to have positive PVGO.

Question 7

BestFirm has a 50-year history of solid growth and ever-increasing profits.It is widely regarded as the leading firm of its industry.Hence,BestFirm's stock:

Accepted Answer

A)  should be a good buy. 
B)  cannot be a good buy. 
C)  should be a safe buy. 
D)  cannot be a safe buy. 
A)  should be a good buy. 
B)  cannot be a good buy. 
C)  should be a safe buy. 
D)  cannot be a safe buy.

Question 8

When new information becomes available in the market,evidence suggests that:

Accepted Answer

A)  insiders will be the only investors to gain. 
B)  it takes at least 10 trading days for stock prices to adjust. 
C)  stock prices will adjust to the information rapidly. 
D)  transaction costs will erase any benefit of trading on the information. 
A)  insiders will be the only investors to gain. 
B)  it takes at least 10 trading days for stock prices to adjust. 
C)  stock prices will adjust to the information rapidly. 
D)  transaction costs will erase any benefit of trading on the information.

Question 9

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

Question 10

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. 
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 11

How can an analyst feel comfortable in stating that the value of a stock is equal to the discounted value of all future dividends when a company may pay dividends indefinitely and it is virtually impossible to predict dividends beyond some reasonable horizon?

Accepted Answer

At most reasonable discount rates for co

Question 12

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

Question 13

Market efficiency implies that security prices impound new information quickly.

Accepted Answer

A) True 
 B)False

Question 14

LookGood,Inc.has just announced the bad news that its earnings have dropped by 30%.In fact,its investors had anticipated even worse results (a decrease of 40%).As a result,LookGood's stock price:

Accepted Answer

A)  increases. 
B)  remains the same. 
C)  decreases. 
D)  follows a random walk as usual. 
A)  increases. 
B)  remains the same. 
C)  decreases. 
D)  follows a random walk as usual.

Question 15

Under which of the following forms of market efficiency would stock prices always reflect fair value?

Accepted Answer

A)  Weak-form efficiency. 
B)  Semistrong-form efficiency. 
C)  Strong-form efficiency. 
D)  All of these are correct due to capital market efficiency. 
A)  Weak-form efficiency. 
B)  Semistrong-form efficiency. 
C)  Strong-form efficiency. 
D)  All of these are correct due to capital market efficiency.

Question 16

Explain why the market value of common stock often differs from its liquidation value or its book value.

Accepted Answer

A firm's liquidation value represents th

Question 17

What dividend yield would be reported in the financial press for a stock that currently pays a $1 dividend per quarter and the most recent stock price was $40?

Accepted Answer

A)  2.5% 
B)  4.0% 
C)  10.0% 
D)  15.0% 
A)  2.5% 
B)  4.0% 
C)  10.0% 
D)  15.0%

Question 18

What is the expected constant-growth rate of dividends for a stock with current price of $100,expected dividend payment of $10 per share,and a required return of 16%?

Accepted Answer

A)  6.00% 
B)  6.25% 
C)  8.00% 
D)  10.00% 
A)  6.00% 
B)  6.25% 
C)  8.00% 
D)  10.00%

Question 19

The dividend yield of a stock is much like the current yield of a bond.Both ignore prospective capital gains or losses.

Accepted Answer

A) True 
 B)False

Question 20

Moonshine Industries has produced a barrel per week for the past 20 years but cannot grow because of certain legal hazards.It earns $25 per share per year and pays it all out to stockholders.The stockholders have alternative,equivalent-risk ventures yielding 20% per year on average.How much is one share of Moonshine worth? Assume the company can keep going indefinitely.

Accepted Answer

Knowing that all earnings are

Exam 7: Valuing Stocks

If the correlation of prices between two stocks is 0.35,then the price of one stock would be expected to:

Dividends that are expected to be paid far into the future have:

The main purpose of a market-value balance sheet is to:

What are index funds and exchange-traded funds? Why are many investors simply choosing to buy and hold index funds or exchange-traded portfolios (ETFs)that track the entire stock market?

A fundamental analyst:

Assuming all of the following firms have a required return of 14%,which would you expect to have a positive present value of growth opportunities?

BestFirm has a 50-year history of solid growth and ever-increasing profits.It is widely regarded as the leading firm of its industry.Hence,BestFirm's stock:

When new information becomes available in the market,evidence suggests that:

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%?

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

How can an analyst feel comfortable in stating that the value of a stock is equal to the discounted value of all future dividends when a company may pay dividends indefinitely and it is virtually impossible to predict dividends beyond some reasonable horizon?

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%?

Market efficiency implies that security prices impound new information quickly.

LookGood,Inc.has just announced the bad news that its earnings have dropped by 30%.In fact,its investors had anticipated even worse results (a decrease of 40%).As a result,LookGood's stock price:

Under which of the following forms of market efficiency would stock prices always reflect fair value?

Explain why the market value of common stock often differs from its liquidation value or its book value.

What dividend yield would be reported in the financial press for a stock that currently pays a $1 dividend per quarter and the most recent stock price was $40?

What is the expected constant-growth rate of dividends for a stock with current price of $100,expected dividend payment of $10 per share,and a required return of 16%?

The dividend yield of a stock is much like the current yield of a bond.Both ignore prospective capital gains or losses.

Goals and Governance of the Corporation

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk,Return,and the Opportunity Cost of Capital

Risk,Return,and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters