Question 1

Which of the following is incorrect with respect to preferred stock?

Accepted Answer

A)  Preferred stock is largely owned by other companies rather than individual investors. 
B)  Preferred stock takes preference over common stock in bankruptcy proceedings. 
C)  Preferred stock dividends do not grow. 
D)  All of the statements are correct.

Question 2

Trading at physical exchanges like the New York Stock Exchange and the American Stock Exchange takes place:

Accepted Answer

A)  at dealers' trading posts. 
B)  at brokers' trading posts. 
C)  at dealers' computers. 
D)  at market markers.

Question 3

A firm has been losing sales due to technological obsolescence.It projects growth for the future to be −3 percent.Its recent dividend was $2.50.What is the value of this stock when the required return is 7 percent?

Accepted Answer

A)  $28.17 
B)  $24.25 
C)  $17.42 
D)  $15.53

Question 4

A preferred stock from DLC pays $5.10 in annual dividends.If the required return on the preferred stock is 12.1 percent,what is the value of the stock?

Accepted Answer

A)  $6.31 
B)  $42.15 
C)  $47.25 
D)  $240.97

Question 5

All of the following are stock market indices EXCEPT:

Accepted Answer

A)  Standard & Poor's 500 Index. 
B)  Dow Jones Industrial Average. 
C)  Nasdaq Composite Index. 
D)  Mercantile 1000.

Question 6

Financial analysts forecast Target Corp.(TGT)growth for the future to be 11 percent.Their recent dividend was $0.52.What is the value of their stock when the required rate of return is 11.89 percent?

Accepted Answer

A)  $5.25 
B)  $6.48 
C)  $58.43 
D)  $64.85

Question 7

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 8

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

Question 9

When residual cash flows are high,stock values will be:

Accepted Answer

A)  unchanged. 
B)  low. 
C)  high. 
D)  unpredictable.

Question 10

A firm does not pay a dividend.It is expected to pay its first dividend of $1.00 per share in two years.This dividend will grow at 5 percent indefinitely.Using a 12 percent discount rate,compute the value of this stock.

Accepted Answer

A)  $12.76 
B)  $12.19 
C)  $11.96 
D)  $11.39

Question 11

At your full-service brokerage firm,it costs $110 per stock trade.How much money do you receive after selling 100 shares of Time Warner,Inc.(TMX),which trades at $22.62?

Accepted Answer

A)  $2,152.00 
B)  $2,262.00 
C)  $2,372.00 
D)  $2,388.20

Question 12

Investors sell stock at the:

Accepted Answer

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

Question 13

Consider a firm that had been priced using a 10 percent growth rate and a 14 percent required rate.The firm recently paid a $1.00 dividend.The firm has just announced that because of a new joint venture,it will likely grow at a 12 percent rate.How much should the stock price change (in dollars and percentage)?

Accepted Answer

A)  $25, 1 percent 
B)  $25, 100 percent 
C)  $28.50, 1.04 percent 
D)  $28.50, 104 percent

Question 14

A firm's stock is selling at $75.00 per share.Its growth rate is 10 percent and investors demand 17 percent on this stock.What is the firm's expected dividend?

Accepted Answer

A)  $4.75 
B)  $5.95 
C)  $6.25 
D)  $5.25

Question 15

Investors buy stock at the:

Accepted Answer

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

Question 16

A firm is expected to pay a dividend of $2.00 next year and $2.14 the following year.Financial analysts believe the stock will be at their target price of $75.00 in two years.Compute the value of this stock with a required return of 10 percent.

Accepted Answer

A)  $65.40 
B)  $66.67 
C)  $65.57 
D)  $79.14

Question 17

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 18

The NASDAQ Composite includes:

Accepted Answer

A)  all of the stocks listed on the NASDAQ Stock Exchange. 
B)  30 of the largest (market capitalization) and most active companies in the U.S. economy. 
C)  500 firms that are the largest in their respective economic sectors. 
D)  500 firms that are the largest as ranked by Fortune Magazine.

Question 19

GEN has 10 million shares outstanding and a stock price of $89.25.What is GEN's market capitalization?

Accepted Answer

A)  $89,250,000,000 
B)  $89,250,000 
C)  $892,500,000 
D)  $892,500

Question 20

The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm's:

Accepted Answer

A)  market capitalization. 
B)  book value. 
C)  market makers. 
D)  constant growth model.

Exam 8: Valuing Stocks