Question 1

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. D

Question 2

A large percentage of the total value of a growth stock comes from the present value of its growth opportunities.

Accepted Answer

A) True 
 B)False  True

Question 3

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). B

Question 4

An investor who uses a limit order instructs his brokerage firm to buy a limited quantity of shares at the best available price.

Accepted Answer

A) True 
 B)False

Question 5

Explain the term primary market.

Accepted Answer

When new shares of common stoc

Question 6

Casino Inc.expects to pay a dividend of $3 per share at the end of year 1 (D1)and these dividends are expected to grow at a constant rate of 6% per year forever.If the required rate of return on the stock is 18%,what is the current value of the stock today?

Accepted Answer

A) $25 
B) $50 
C) $100 
D) $54 
A) $25 
B) $50 
C) $100 
D) $54

Question 7

The growth rate in dividends is a function of two ratios.They are:

Accepted Answer

A) ROA and ROE. 
B) dividend yield and growth rate in stock price. 
C) ROE and the plowback ratio. 
D) book value per share and EPS. 
A) ROA and ROE. 
B) dividend yield and growth rate in stock price. 
C) ROE and the plowback ratio. 
D) book value per share and EPS.

Question 8

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 9

Which of the following stocks is an income stock?

Accepted Answer

A) Dow Chemicals 
B) Starbucks 
C) Facebook 
D) Google 
A) Dow Chemicals 
B) Starbucks 
C) Facebook 
D) Google

Question 10

Seven-Seas Co.just paid a dividend of $3 per share out of earnings of $5 per share.If its book value per share is $40 and its market price is $52.50 per share,calculate the required rate of return on the stock.

Accepted Answer

A) 12% 
B) 11% 
C) 5% 
D) 6% 
A) 12% 
B) 11% 
C) 5% 
D) 6%

Question 11

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

Accepted Answer

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

Question 12

The exchange-traded fund (ETF)that tracks the Nasdaq 100 index is called:

Accepted Answer

A) SPDR. 
B) DIAMONDS. 
C) QQQQ. 
D) NDAQQ. 
A) SPDR. 
B) DIAMONDS. 
C) QQQQ. 
D) NDAQQ.

Question 13

CK Company stockholders expect to receive a year-end dividend of $5 per share and then immediately sell their shares for $115 dollars per share.If the required rate of return for the stock is 20%,what is the current value of the stock?

Accepted Answer

A) $132 
B) $122 
C) $100 
D) $110 
A) $132 
B) $122 
C) $100 
D) $110

Question 14

An investor who uses a market order instructs her brokerage firm to buy a given quantity of shares at the best available price.

Accepted Answer

A) True 
 B)False

Question 15

A high proportion of the value of a growth stock typically comes from:

Accepted Answer

A) past dividend payments. 
B) past earnings. 
C) PVGO (present value of growth opportunities). 
D) both A and B. 
A) past dividend payments. 
B) past earnings. 
C) PVGO (present value of growth opportunities). 
D) both A and B.

Question 16

A stock's price is based on the expected present value,at the market capitalization rate,of all the stock's future earnings.

Accepted Answer

A) True 
 B)False

Question 17

In which of the following exchanges does a computer act as the auctioneer?
i.New York Stock Exchange; II)London Stock Exchange; III)Tokyo Stock Exchange; IV)Frankfurt Stock Exchange

Accepted Answer

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

Question 18

Galaxy Air,previously a no-growth firm,has two million shares outstanding.Until now,it consistently earned $20 million per year on its assets.(It has no debt and pays out all earnings as dividends.Its cost of capital is 10%.)Due to its newly appointed CEO,Galaxy Air is now able to squeeze out 1% annual growth by plowing back 5% of earnings.Calculate its stock price per share.

Accepted Answer

A) $200.00 
B) $106.61 
C) $100.00 
D) $110.10 
A) $200.00 
B) $106.61 
C) $100.00 
D) $110.10

Question 19

Which of the following formulas regarding the earnings-to-price ratio is true?

Accepted Answer

A) EPS/P0 = r[1 + PVGO/P0] 
B) EPS/P0 = r[1 - PVGO/P0] 
C) EPS/P0 = [r + PVGO/P0] 
D) EPS/P0 = [1 + r + PVGO/P0)]/r 
A) EPS/P0 = r[1 + PVGO/P0] 
B) EPS/P0 = r[1 - PVGO/P0] 
C) EPS/P0 = [r + PVGO/P0] 
D) EPS/P0 = [1 + r + PVGO/P0)]/r

Question 20

R&D Technology Corporation just paid a dividend of $0.50 per share.Analysts expect its dividend to grow at 24% per year for the next two years and then 8% per year thereafter.If the required rate of return in the stock is 16%,calculate the current value of the stock.

Accepted Answer

A) $1.11 
B) $7.71 
C) $8.82 
D) $10.38 
A) $1.11 
B) $7.71 
C) $8.82 
D) $10.38

Exam 4: The Value of Common Stocks

The following is an example of a dealer market:

A large percentage of the total value of a growth stock comes from the present value of its growth opportunities.

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

An investor who uses a limit order instructs his brokerage firm to buy a limited quantity of shares at the best available price.

Explain the term primary market.

Casino Inc.expects to pay a dividend of $3 per share at the end of year 1 (D1)and these dividends are expected to grow at a constant rate of 6% per year forever.If the required rate of return on the stock is 18%,what is the current value of the stock today?

The growth rate in dividends is a function of two ratios.They are:

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

Which of the following stocks is an income stock?

Seven-Seas Co.just paid a dividend of $3 per share out of earnings of $5 per share.If its book value per share is $40 and its market price is $52.50 per share,calculate the required rate of return on the stock.

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

The exchange-traded fund (ETF)that tracks the Nasdaq 100 index is called:

CK Company stockholders expect to receive a year-end dividend of $5 per share and then immediately sell their shares for $115 dollars per share.If the required rate of return for the stock is 20%,what is the current value of the stock?

An investor who uses a market order instructs her brokerage firm to buy a given quantity of shares at the best available price.

A high proportion of the value of a growth stock typically comes from:

A stock's price is based on the expected present value,at the market capitalization rate,of all the stock's future earnings.

In which of the following exchanges does a computer act as the auctioneer? i.New York Stock Exchange; II)London Stock Exchange; III)Tokyo Stock Exchange; IV)Frankfurt Stock Exchange

Which of the following formulas regarding the earnings-to-price ratio is true?

R&D Technology Corporation just paid a dividend of $0.50 per share.Analysts expect its dividend to grow at 24% per year for the next two years and then 8% per year thereafter.If the required rate of return in the stock is 16%,calculate the current value of the stock.

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

Investment, Strategy, and Economic Rents

Agency Problems, Compensation, and Performance Measurement

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

Casino Inc.expects to pay a dividend of $3 per share at the end of year 1 (D₁)and these dividends are expected to grow at a constant rate of 6% per year forever.If the required rate of return on the stock is 18%,what is the current value of the stock today?