Question 1

Laura is considering two investments: Stock A and B. Both stocks have a P/E ratio of 19. Stock A has an expected growth rate of 5% and stock B has an expected growth rate of 13%. Which is the better stock and why?

Accepted Answer

A)   Stock B is better because it is considered to be cheaper than Stock A.
B)   Stock A is better because it is expected to grow at a slower rate and therefore will be less risky than Stock B.
C)   Since the P/E ratios are the same, Laura would be indifferent between the two stocks.
D)   None of these statements is correct. A

Question 2

Buying Stock with a Market Order You would like to buy shares of Nokia (NOK). The current bid and ask quotes are $20.13 and $20.15, respectively. You place a market buy-order for 300 shares that executes at these quoted prices. How much money did it cost to buy these shares?

Accepted Answer

A)   $6.00
B)   $6,039.00
C)   $6,045.00
D)   $12,084.00 C

Question 3

Value of Future Cash Flows A firm recently paid a $0.30 annual dividend. The dividend is expected to increase by 8 percent in each of the next four years. In the fourth year, the stock price is expected to be $60. If the required rate for this stock is 10 percent, what is its current value?

Accepted Answer

A)   $15.00
B)   $20.41
C)   $42.13
D)   $45.30 C

Question 4

A firm's recent dividend was $2.00 per share. The stock is selling in the market place for $50.00 per share. If investors are demanding 10% on this stock, what is this stock's growth rate?

Accepted Answer

A)   4.73%
B)   5.92%
C)   6.00%
D)   5.77%

Question 5

Buying Stock with Commission At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 100 shares of Ralph Lauren (RL), which trades at $85.13?

Accepted Answer

A)   $8,503.05
B)   $8,503.00
C)   $8,522.95
D)   $9,508.00

Question 6

Sally has researched GLE and wants to pay no more than $50 for the stock. Currently, GLE is trading in the market for $54. Sally would be best served to:

Accepted Answer

A)   buy using a limit order.
B)   buy using a market order.
C)   use the bid-ask spread to her advantage.
D)   None of these.

Question 7

A firm recently paid a $0.50 annual dividend. The dividend is expected to increase by 10% in each of the next three years. In the third year, the stock price is expected to be $110. If the required return is 15%, what is its value?

Accepted Answer

A)   $62.53
B)   $68.95
C)   $73.71
D)   $78.67

Question 8

P/E Ratio and Stock Price Pfizer, Inc. (PFE) has earnings per share of $2.09 and a P/E ratio of 11.02. What is the stock price?

Accepted Answer

A)   $0.19
B)   $5.27
C)   $18.97
D)   $23.03

Question 9

This will only be executed if the order's price conditions are met.

Accepted Answer

A)   a trade
B)   a limit order
C)   an unlimited order
D)   a spread

Question 10

Value of a Preferred Stock If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 7 percent, what's the value of the stock?

Accepted Answer

A)   $0.21
B)   $0.43
C)   $21.00
D)   $42.86

Question 11

Individuals who use their own stock inventory and capital to buy and sell the stocks they represent are called _________________.

Accepted Answer

A)   Market makers
B)   Brokers
C)   Investors
D)   None of these.

Question 12

A preferred stock from DLC pays $3.00 in annual dividends. If the required return on the preferred stock is 9.3%, what is the value of the stock?

Accepted Answer

A)   $34.89
B)   $32.26
C)   $38.49
D)   $31.13

Question 13

Selling Stock with a Limit Order You would like to sell 100 shares of Pfizer, Inc. (PFE). The current bid and ask quotes are $27.22 and $27.25, respectively. You place a limit sell-order at $27.24. If the trade executes, how much money do you receive from the buyer?

Accepted Answer

A)   $2,722.00
B)   $2,724.00
C)   $2,725.00
D)   $5,446.00

Question 14

Investors sell stock at the

Accepted Answer

A)   dealer price.
B)   bid price.
C)   quoted ask price.
D)   broker price.

Question 15

GEN has 3 million shares outstanding and a P/E ratio of 15. Its earnings per share is $3.00 What is GEN's market capitalization?

Accepted Answer

A)   $45,000,000
B)   $135,000,000
C)   $112,000,000
D)   $9,000,000

Question 16

P/E Ratio and Stock Price International Business Machines (IBM) has earnings per share of $6.85 and a P/E ratio of 15.19. What is the stock price?

Accepted Answer

A)   $0.45
B)   $2.22
C)   $45.09
D)   $104.05

Question 17

Selling Stock with Commissions At your full-service brokerage firm, it costs $120 per stock trade. How much money do you receive after selling 200 shares of Ralph Lauren (RL), which trades at $85.13?

Accepted Answer

A)   $16,546.00
B)   $16,906.00
C)   $17,026.00
D)   $17,146.00

Question 18

Expected Return The Buckle (BKE) recently paid a $0.90 dividend. The dividend is expected to grow at a 19 percent rate. At the current stock price of $43.17, what is the return shareholders are expecting?

Accepted Answer

A)   19.00%
B)   19.02%
C)   21.48%
D)   22.74%

Question 19

Changes in Growth and Stock Valuation Consider a firm that had been priced using a 6 percent growth rate and a 9 percent required rate. The firm recently paid a $0.50 dividend. The firm has just announced that because of a new joint venture, it will likely grow at an 8 percent rate. How much should the stock price change (in dollars and percentage)?

Accepted Answer

A)   $33.33, 67%
B)   $33.33, 198%
C)   $36.33, 67%
D)   $36.33, 206%

Question 20

ABC has a net profit margin of 3.3% on Sales of $10,000,000. The firm has 50,000 shares outstanding. If the firm's P/E is 19 times, how much is the stock selling for?

Accepted Answer

A)   $41.72
B)   $34.96
C)   $125.40
D)   $99.16

Exam 8: Valuing Stocks