Question 1

Securities with the same expected risk should offer the same expected rate of return.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following best characterizes the difference between growth stocks and income stocks?

Accepted Answer

A)  Growth stocks do not pay dividends. 
B)  Income stocks offer higher rates of return. 
C)  Income stocks are seasoned issues. 
D)  Growth stocks have greater PVGO. 
A)  Growth stocks do not pay dividends. 
B)  Income stocks offer higher rates of return. 
C)  Income stocks are seasoned issues. 
D)  Growth stocks have greater PVGO.

Question 3

What should be the price for a common stock paying $3.50 annually in dividends if the growth rate is zero and the discount rate is 8%?

Accepted Answer

A)  $22.86 
B)  $28.00 
C)  $42.00 
D)  $43.75 
A)  $22.86 
B)  $28.00 
C)  $42.00 
D)  $43.75

Question 4

If the liquidation value of a firm is negative,then:

Accepted Answer

A)  the firm's debt exceeds the market value of assets. 
B)  the firm's debt exceeds the book value of equity. 
C)  the book value of assets exceeds the firm's debt. 
D)  the market value of assets exceeds the firm's debt. 
A)  the firm's debt exceeds the market value of assets. 
B)  the firm's debt exceeds the book value of equity. 
C)  the book value of assets exceeds the firm's debt. 
D)  the market value of assets exceeds the firm's debt.

Question 5

What is the current price of a share of stock for a firm with $5 million in balance-sheet equity,500,000 shares of stock outstanding,and a price/book value ratio of 4?

Accepted Answer

A)  $2.50 
B)  $10.00 
C)  $20.00 
D)  $40.00 
A)  $2.50 
B)  $10.00 
C)  $20.00 
D)  $40.00

Question 6

The required return on an equity security is comprised of a:

Accepted Answer

A)  dividend yield and ROE. 
B)  current yield and a terminal value. 
C)  sustainable growth rate and a plowback yield. 
D)  dividend yield and a capital gains yield. 
A)  dividend yield and ROE. 
B)  current yield and a terminal value. 
C)  sustainable growth rate and a plowback yield. 
D)  dividend yield and a capital gains yield.

Question 7

How is it possible to ignore cash dividends that occur far into the future when using a dividend discount model? Those dividends:

Accepted Answer

A)  will be paid to a different investor. 
B)  will not be paid by the firm. 
C)  have an insignificant present value. 
D)  ignore the tax consequences of future dividends. 
A)  will be paid to a different investor. 
B)  will not be paid by the firm. 
C)  have an insignificant present value. 
D)  ignore the tax consequences of future dividends.

Question 8

What is the required return for a stock that has a 6% constant-growth rate,a price of $25,an expected dividend of $2,and a P/E ratio of 10?

Accepted Answer

A)  5% 
B)  10% 
C)  14% 
D)  22% 
A)  5% 
B)  10% 
C)  14% 
D)  22%

Question 9

If the market is efficient,stock prices should be expected to react only to new information that is released.

Accepted Answer

A) True 
 B)False

Question 10

What rate of return is expected from a stock that sells for $30 per share,pays $1.50 annually in dividends,and is expected to sell for $33 per share in one year?

Accepted Answer

A)  5.00% 
B)  10.00% 
C)  14.09% 
D)  15.00% 
A)  5.00% 
B)  10.00% 
C)  14.09% 
D)  15.00%

Question 11

Which of the following is least assured for firms that plowback a portion of earnings into the firm?

Accepted Answer

A)  Growth in earnings per share 
B)  Growth in dividends per share 
C)  Growth in book value of equity 
D)  Growth in stock price 
A)  Growth in earnings per share 
B)  Growth in dividends per share 
C)  Growth in book value of equity 
D)  Growth in stock price

Question 12

A firm's liquidation value is the amount:

Accepted Answer

A)  necessary to repurchase all shares of common stock. 
B)  realized from selling all assets and paying off its creditors. 
C)  a purchaser would pay for the firm in bankruptcy. 
D)  equal to the book value of equity. 
A)  necessary to repurchase all shares of common stock. 
B)  realized from selling all assets and paying off its creditors. 
C)  a purchaser would pay for the firm in bankruptcy. 
D)  equal to the book value of equity.

Question 13

What should be the current price of a stock if the expected dividend is $5,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 14

Which of the following is least likely to contribute to going concern value?

Accepted Answer

A)  High liquidation value 
B)  Extra earning power 
C)  Future investment opportunities 
D)  Intangible assets 
A)  High liquidation value 
B)  Extra earning power 
C)  Future investment opportunities 
D)  Intangible assets

Question 15

The statement that there are no free lunches on Wall Street suggests that:

Accepted Answer

A)  the market is strong-form efficient. 
B)  there is no return to technical or fundamental analysis. 
C)  security prices reflect all available information. 
D)  food purveyors are capitalists. 
A)  the market is strong-form efficient. 
B)  there is no return to technical or fundamental analysis. 
C)  security prices reflect all available information. 
D)  food purveyors are capitalists.

Question 16

If the stock prices follow a random walk,successive stock prices are not related.

Accepted Answer

A) True 
 B)False

Question 17

A positive value for PVGO suggests that the firm has:

Accepted Answer

A)  a positive return on equity. 
B)  a positive plowback ratio. 
C)  investment opportunities with superior returns. 
D)  a high rate of constant growth. 
A)  a positive return on equity. 
B)  a positive plowback ratio. 
C)  investment opportunities with superior returns. 
D)  a high rate of constant growth.

Question 18

The liquidation value of a firm is equal to the book value of the firm.

Accepted Answer

A) True 
 B)False

Question 19

The study of published financial information on a company in order to make investment decisions is known as:

Accepted Answer

A)  technical analysis. 
B)  fundamental analysis. 
C)  efficiency analysis. 
D)  random pricing analysis. 
A)  technical analysis. 
B)  fundamental analysis. 
C)  efficiency analysis. 
D)  random pricing analysis.

Question 20

A stock paying $5 in annual dividends sells now for $80 and has an expected return of 14%.What might investors expect to pay for the stock 1 year from now?

Accepted Answer

A)  $82.20 
B)  $86.20 
C)  $87.20 
D)  $91.20 
A)  $82.20 
B)  $86.20 
C)  $87.20 
D)  $91.20

Exam 7: Valuing Stocks

Securities with the same expected risk should offer the same expected rate of return.

Which of the following best characterizes the difference between growth stocks and income stocks?

What should be the price for a common stock paying $3.50 annually in dividends if the growth rate is zero and the discount rate is 8%?

If the liquidation value of a firm is negative,then:

What is the current price of a share of stock for a firm with $5 million in balance-sheet equity,500,000 shares of stock outstanding,and a price/book value ratio of 4?

The required return on an equity security is comprised of a:

How is it possible to ignore cash dividends that occur far into the future when using a dividend discount model? Those dividends:

What is the required return for a stock that has a 6% constant-growth rate,a price of $25,an expected dividend of $2,and a P/E ratio of 10?

If the market is efficient,stock prices should be expected to react only to new information that is released.

What rate of return is expected from a stock that sells for $30 per share,pays $1.50 annually in dividends,and is expected to sell for $33 per share in one year?

Which of the following is least assured for firms that plowback a portion of earnings into the firm?

A firm's liquidation value is the amount:

What should be the current price of a stock if the expected dividend is $5,the stock has a required return of 20%,and a constant dividend growth rate of 6%?

Which of the following is least likely to contribute to going concern value?

The statement that there are no free lunches on Wall Street suggests that:

If the stock prices follow a random walk,successive stock prices are not related.

A positive value for PVGO suggests that the firm has:

The liquidation value of a firm is equal to the book value of the firm.

The study of published financial information on a company in order to make investment decisions is known as:

A stock paying $5 in annual dividends sells now for $80 and has an expected return of 14%.What might investors expect to pay for the stock 1 year from now?

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