Question 1

Why is the ask price higher than the bid price?

Accepted Answer

A)  It represents the gain a market maker achieves. 
B)  It represents the gain the stock seller achieves. 
C)  It represents the gain the stock buy achieves. 
D)  It represents the gain all participants will achieve.

Question 2

A firm's stock is selling at $95.00 per share.Its growth rate is 10 percent and investors demand 15 percent on this stock.What is the firm's expected dividend?

Accepted Answer

A)  $4.75 
B)  $5.95 
C)  $6.25 
D)  $5.50

Question 3

If on November 27,2017,The Dow Jones Industrial Average closed at 12,958.44,which was up 215.04 that day.What was the return (in percent)of the stock market that day?

Accepted Answer

A)  −0.017 percent 
B)  +0.017 percent 
C)  −1.69 percent 
D)  +1.69 percent

Question 4

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 percent and stock B has an expected growth rate of 13 percent.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 the statements are correct.

Question 5

Which of the following 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 6

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 percent 
B)  19.02 percent 
C)  21.48 percent 
D)  22.74 percent

Question 7

A stock is expected to pay a $4.00 dividend per share.The growth rate is expected to be −1 percent.If investors demand 8 percent on this stock,what is the expected price of the stock three years from now?

Accepted Answer

A)  $54.68 
B)  $52.17 
C)  $41.06 
D)  $43.12

Question 8

At your full-service brokerage firm,it costs $125 per stock trade.How much money do you receive after selling 200 shares of Time Warner,Inc.(TMX),which trades at $29.54?

Accepted Answer

A)  $5,783.00 
B)  $5,908.00 
C)  $6,033.00 
D)  $19,092.00

Question 9

Walmart (WMT)recently earned a profit of $3.13 per share and has a P/E ratio of 14.22.The dividend has been growing at a 12.5 percent rate over the past few years.If this growth continues,what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio declined to 10 in five years?

Accepted Answer

A)  $6.08, $5.04 respectively 
B)  $72.22, $50.40 respectively 
C)  $80.20, $56.40 respectively 
D)  $86.46, $60.80 respectively

Question 10

You would like to buy shares of International Business Machines (IBM).The current bid and ask quotes are $96.17 and $96.24,respectively.You place a market buy-order for 100 shares that executes at these quoted prices.How much money did it cost to buy these shares?

Accepted Answer

A)  $7.00 
B)  $9,617.00 
C)  $9,624.00 
D)  $19,241.00

Question 11

A stock is expected to pay a $5.00 dividend per share.The growth rate is expected to be −2 percent.If investors demand 8 percent on this stock,what is the expected price of the stock five years from now?

Accepted Answer

A)  $54.68 
B)  $45.20 
C)  $41.06 
D)  $53.12

Question 12

We can estimate a stock's value by:

Accepted Answer

A)  using the book value of the total stockholder equity section. 
B)  discounting the future dividends and future stock price appreciation. 
C)  compounding the past dividends and past stock price appreciation. 
D)  using the book value of the total assets divided by the number of shares outstanding.

Question 13

Financial analysts forecast Best Buy Company (BBY)growth for the future to be 13 percent.Their recent dividend was $0.49.What is the value of their stock when the required rate of return is 14.13 percent?

Accepted Answer

A)  $3.92 
B)  $4.90 
C)  $43.36 
D)  $49.00

Question 14

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 percent 
B)  $33.33, 198 percent 
C)  $36.33, 67 percent 
D)  $36.33, 206 percent

Question 15

A fast growing firm recently paid a dividend of $1.00 per share.The dividend is expected to increase at a 25 percent rate for the next three years.Afterwards,a more stable 8 percent growth rate can be assumed.If a 10 percent discount rate is appropriate for this stock,what is its value?

Accepted Answer

A)  $12.50 
B)  $75.93 
C)  $83.13 
D)  $120.24

Question 16

You would like to buy shares of Nokia (NOK).The current bid and ask quotes are $25.43 and $25.45,respectively.You place a market buy-order for 150 shares that executes at these quoted prices.How much money did it cost to buy these shares?

Accepted Answer

A)  $1,908.75 
B)  $3,815.50 
C)  $3,817.50 
D)  None of the options

Question 17

A firm does not pay a dividend.It is expected to pay its first dividend of $0.15 per share in three years.This dividend will grow at 9 percent indefinitely.Using a 10 percent discount rate,compute the value of this stock.

Accepted Answer

A)  $12.28 
B)  $12.40 
C)  $16.35 
D)  $16.50

Question 18

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

Accepted Answer

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

Question 19

Annual dividends of Pfizer,Inc.(PFE)grew from $0.38 in 2000 to $1.15 in 2007.What was the annual growth rate?

Accepted Answer

A)  2.02 percent 
B)  17.14 percent 
C)  28.95 percent 
D)  202.63 percent

Question 20

Suppose that a firm's recent earnings per share and dividend per share are $2.50 and $1.00,respectively.Both are expected to grow at 5 percent.However,the firm's current P/E ratio of 23 seems high for this growth rate.The P/E ratio is expected to fall to 19 within five years.Compute a value for this stock.Assume a 10 percent required rate.

Accepted Answer

A)  $36.19 
B)  $38.86 
C)  $40.31 
D)  $42.00

Exam 8: Valuing Stocks

Why is the ask price higher than the bid price?

A firm's stock is selling at $95.00 per share.Its growth rate is 10 percent and investors demand 15 percent on this stock.What is the firm's expected dividend?

If on November 27,2017,The Dow Jones Industrial Average closed at 12,958.44,which was up 215.04 that day.What was the return (in percent) of the stock market that day?

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 percent and stock B has an expected growth rate of 13 percent.Which is the better stock and why?

Which of the following will only be executed if the order's price conditions are met?

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?

A stock is expected to pay a $4.00 dividend per share.The growth rate is expected to be −1 percent.If investors demand 8 percent on this stock,what is the expected price of the stock three years from now?

At your full-service brokerage firm,it costs $125 per stock trade.How much money do you receive after selling 200 shares of Time Warner,Inc.(TMX) ,which trades at $29.54?

You would like to buy shares of International Business Machines (IBM) .The current bid and ask quotes are $96.17 and $96.24,respectively.You place a market buy-order for 100 shares that executes at these quoted prices.How much money did it cost to buy these shares?

A stock is expected to pay a $5.00 dividend per share.The growth rate is expected to be −2 percent.If investors demand 8 percent on this stock,what is the expected price of the stock five years from now?

We can estimate a stock's value by:

Financial analysts forecast Best Buy Company (BBY) growth for the future to be 13 percent.Their recent dividend was $0.49.What is the value of their stock when the required rate of return is 14.13 percent?

A fast growing firm recently paid a dividend of $1.00 per share.The dividend is expected to increase at a 25 percent rate for the next three years.Afterwards,a more stable 8 percent growth rate can be assumed.If a 10 percent discount rate is appropriate for this stock,what is its value?

You would like to buy shares of Nokia (NOK) .The current bid and ask quotes are $25.43 and $25.45,respectively.You place a market buy-order for 150 shares that executes at these quoted prices.How much money did it cost to buy these shares?

A firm does not pay a dividend.It is expected to pay its first dividend of $0.15 per share in three years.This dividend will grow at 9 percent indefinitely.Using a 10 percent discount rate,compute the value of this stock.

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

Annual dividends of Pfizer,Inc.(PFE) grew from $0.38 in 2000 to $1.15 in 2007.What was the annual growth rate?