Question 1

The Zumwalt Company is expected to pay a dividend of $2.25 per share at the end of the year,and that dividend is expected to grow at a constant rate of 5.00% per year in the future.The company's beta is 1.15,the market risk premium is 5.50%,and the risk-free rate is 4.00%.What is the company's current stock price?

Accepted Answer

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Question 2

If the stock market is semistrong efficient,which of the following statements is correct?

Accepted Answer

If the stock market is semistrong efficient, all publicly available information, such as financial statements and news articles, is already reflected in stock prices, meaning that investors cannot outperform the market by making trades based on that information. However, investors may be able to outperform the market if they have access to non-public information that has not yet been incorporated into stock prices. Therefore, statement B is the correct choice. Statements A, C, and D are incorrect because semistrong efficiency does not imply that all stocks should have the same expected returns or that stocks and bonds should have the same expected returns. The realized returns of different stocks may vary based on factors such as risk and market conditions.

Question 3

If D₁ = $1.25,g (which is constant) = 5.5%,and P₀ = $44,what is the stock's expected total return for the coming year?

Accepted Answer

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Question 4

If D₀ = $2.25,g (which is constant) = 3.5%,and P₀ = $50,what is the stock's expected dividend yield for the coming year?

Accepted Answer

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Question 5

Gary Wells Inc.plans to issue perpetual preferred stock with an annual dividend of $6.50 per share.If the required return on this preferred stock is 6.5%,at what price should the stock sell?

Accepted Answer

The price of a perpetual preferred stock can be calculated using the formula: Price = Dividend / Required Return. Therefore, Price = $6.50 / 0.065 = $100.00.

Question 6

A share of common stock has just paid a dividend of $2.00.If the expected long-run growth rate for this stock is 5.0%,and if investors' required rate of return is 10.5%,what is the stock price?

Accepted Answer

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Question 7

If D₁ = $1.50,g (which is constant) = 6.5%,and P₀ = $56,what is the stock's expected capital gains yield for the coming year?

Accepted Answer

The expected capital gains yield is calculated as (D1 - P0) / P0 * 100. In this case, (D1 - P0) / P0 * 100 = (1.50 - 56) / 56 * 100 = -6.50%. However, since the question asks for the expected capital gains yield for the coming year, we need to add the constant growth rate of 6.5% to the negative capital gains yield. Therefore, the expected capital gains yield for the coming year is -6.50% + 6.50% = 0%.

Question 8

The Isberg Company just paid a dividend of $0.80 per share,and that dividend is expected to grow at a constant rate of 6.00% per year in the future.The company's beta is 1.25,the market risk premium is 5.00%,and the risk-free rate is 4.00%.What is the company's current stock price?

Accepted Answer

The correct answer is A.The current stock price can be calculated using the Gordon Growth Model:P0 = D1 / (r - g)where:P0 is the current stock priceD1 is the next dividend payment ($0.80 * 1.06 = $0.848)r is the required rate of returng is the growth rate of dividends (6.00%)Using the Capital Asset Pricing Model (CAPM), we can calculate the required rate of return:r = rf + β * (rm - rf)where:rf is the risk-free rate (4.00%)β is the beta (1.25)rm is the market risk premium (5.00%)r = 4.00% + 1.25 * (5.00% - 4.00%) = 5.25%Substituting these values into the Gordon Growth Model, we get:P0 = $0.848 / (5.25% - 6.00%) = $19.95

Question 9

McDonnell Manufacturing is expected to pay a dividend of $1.50 per share at the end of the year (D₁ = $1.50).The stock sells for $34.50 per share,and its required rate of return is 11.5%.The dividend is expected to grow at some constant rate,g,forever.What is the equilibrium expected growth rate?

Accepted Answer

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Question 10

Assuming that markets are semistrong efficient,which of the following statements is correct?

Accepted Answer

If markets are semistrong efficient, all publicly available information including past stock prices, should be reflected in the current market price. Therefore, it is difficult to consistently beat the market using this information. According to the SML, an investor should expect to earn a return that compensates for the level of risk they are taking. Any returns earned above this level would be due to luck or access to private information. Therefore, the most likely returns for an investor are those predicted by the SML, but it is unlikely that they will consistently earn returns above this level without an information advantage. Option A and D are incorrect because not all stocks have the same expected return and investors should not expect to consistently earn returns above what is predicted by the SML. Option B is incorrect because past prices should already be reflected in the current price.

Question 11

If D₁ = $1.75,g (which is constant) = 4.5%,and P₀ = $46,what is the stock's expected dividend yield for the coming year?

Accepted Answer

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Question 12

Which of the following statements is correct?

Accepted Answer

The preemptive right allows existing shareholders to maintain their proportional ownership in the company when new shares are issued, ensuring they can buy additional shares before the company offers them to the public.

Question 13

A common share just paid a dividend of D₀ = $1.75.The required rate of return is r_s = 12.0%,and the constant growth rate is g = 4.0%.What is the current share price?

Accepted Answer

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Question 14

Which statement regarding the efficient markets hypothesis is true?

Accepted Answer

The efficient markets hypothesis allows for the presence of some irrational investors as long as their trades are random and thus cancel each other out, allowing prices to reflect all available information. This means that the market can still be considered efficient even with irrational participants, as their impact is diluted by the rational actions of other investors.

Question 15

Ewert Enterprises' stock currently sells for $30.50 per share.The stock's dividend is projected to increase at a constant rate of 4.50% per year.The required rate of return on the stock,r_s,is 10.00%.What is Ewert's expected price 3 years from today?

Accepted Answer

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Question 16

Stock X has a required return of 10%,while Stock Y has a required return of 12%.Which of the following statements is correct?

Accepted Answer

Given that Stock Y has a higher required return (12%) compared to Stock X (10%), and if it also has a lower expected dividend yield, the only way for it to meet its higher required return is through a higher expected growth rate in dividends. This is based on the dividend discount model, which values a stock based on its dividend yield and growth in dividends.

Question 17

E.M.Roussakis Inc.'s stock currently sells for $45 per share.The stock's dividend is projected to increase at a constant rate of 3.75% per year.The required rate of return on the stock,r_s,is 15.50%.What is Roussakis' expected price 5 years from now?

Accepted Answer

The expected price 5 years from now can be calculated using the dividend growth model. The formula for the price of a stock at time T (P_T) is given by: P_T = D_0 * (1 + g)^(T+1) / (r - g), where D_0 is the current dividend, g is the growth rate, r is the required rate of return, and T is the number of years in the future. However, since the current dividend (D_0) is not provided, we use the current price and the growth rate to find the future price directly: P_5 = P_0 * (1 + g)^5, where P_0 is the current price, and g is the growth rate. Plugging in the values: P_5 = $45 * (1 + 0.0375)^5 = $54.09.

Question 18

A stock is expected to pay a dividend of $0.75 at the end of the year.The required rate of return is r_s = 12.5%,and the expected constant growth rate is g = 8.5%.What is its current price?

Accepted Answer

Using the constant growth model:
P0 = D1 / (r - g)
where:
D1 = expected dividend next year = $0.75
r = required rate of return = 12.5% = 0.125
g = expected growth rate = 8.5% = 0.085

P0 = 0.75 / (0.125 - 0.085) = $18.75

Therefore, the current price of the stock is $18.75, so the best choice is C.

Question 19

Assume that markets are semistrong efficient,but not strong-form efficient.Which of the following statements is correct?

Accepted Answer

Semistrong efficiency means that all publicly available information is reflected in stock prices. However, if markets are not strong-form efficient, then investors may be able to earn returns above those predicted by the capital asset pricing model (SML) if they have access to private information that has not been publicly revealed. Therefore, B is the correct statement. Choices A, C, and D are incorrect because they assume that markets are strong-form efficient, which is not the case in this scenario.

Question 20

If D₀ = $2.75,g (which is constant) = 3%,and P₀ = $36,what is the stock's expected total return for the coming year?

Accepted Answer

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Quiz 8: Stocks, Stock Valuation, and Stock Market Equilibrium

If the stock market is semistrong efficient,which of the following statements is correct?

If D₁ = $1.25,g (which is constant) = 5.5%,and P₀ = $44,what is the stock's expected total return for the coming year?

If D₀ = $2.25,g (which is constant) = 3.5%,and P₀ = $50,what is the stock's expected dividend yield for the coming year?

Gary Wells Inc.plans to issue perpetual preferred stock with an annual dividend of $6.50 per share.If the required return on this preferred stock is 6.5%,at what price should the stock sell?

A share of common stock has just paid a dividend of $2.00.If the expected long-run growth rate for this stock is 5.0%,and if investors' required rate of return is 10.5%,what is the stock price?

If D₁ = $1.50,g (which is constant) = 6.5%,and P₀ = $56,what is the stock's expected capital gains yield for the coming year?

The Isberg Company just paid a dividend of $0.80 per share,and that dividend is expected to grow at a constant rate of 6.00% per year in the future.The company's beta is 1.25,the market risk premium is 5.00%,and the risk-free rate is 4.00%.What is the company's current stock price?

McDonnell Manufacturing is expected to pay a dividend of $1.50 per share at the end of the year (D₁ = $1.50) .The stock sells for $34.50 per share,and its required rate of return is 11.5%.The dividend is expected to grow at some constant rate,g,forever.What is the equilibrium expected growth rate?

Assuming that markets are semistrong efficient,which of the following statements is correct?

If D₁ = $1.75,g (which is constant) = 4.5%,and P₀ = $46,what is the stock's expected dividend yield for the coming year?

Which of the following statements is correct?

A common share just paid a dividend of D₀ = $1.75.The required rate of return is r_s = 12.0%,and the constant growth rate is g = 4.0%.What is the current share price?

Which statement regarding the efficient markets hypothesis is true?

Ewert Enterprises' stock currently sells for $30.50 per share.The stock's dividend is projected to increase at a constant rate of 4.50% per year.The required rate of return on the stock,r_s,is 10.00%.What is Ewert's expected price 3 years from today?

Stock X has a required return of 10%,while Stock Y has a required return of 12%.Which of the following statements is correct?

E.M.Roussakis Inc.'s stock currently sells for $45 per share.The stock's dividend is projected to increase at a constant rate of 3.75% per year.The required rate of return on the stock,r_s,is 15.50%.What is Roussakis' expected price 5 years from now?

A stock is expected to pay a dividend of $0.75 at the end of the year.The required rate of return is r_s = 12.5%,and the expected constant growth rate is g = 8.5%.What is its current price?

Assume that markets are semistrong efficient,but not strong-form efficient.Which of the following statements is correct?

If D₀ = $2.75,g (which is constant) = 3%,and P₀ = $36,what is the stock's expected total return for the coming year?

Quiz 8: Stocks, Stock Valuation, and Stock Market Equilibrium

If the stock market is semistrong efficient,which of the following statements is correct?

If D1 = $1.25,g (which is constant) = 5.5%,and P0 = $44,what is the stock's expected total return for the coming year?

If D0 = $2.25,g (which is constant) = 3.5%,and P0 = $50,what is the stock's expected dividend yield for the coming year?

Gary Wells Inc.plans to issue perpetual preferred stock with an annual dividend of $6.50 per share.If the required return on this preferred stock is 6.5%,at what price should the stock sell?

A share of common stock has just paid a dividend of $2.00.If the expected long-run growth rate for this stock is 5.0%,and if investors' required rate of return is 10.5%,what is the stock price?

If D1 = $1.50,g (which is constant) = 6.5%,and P0 = $56,what is the stock's expected capital gains yield for the coming year?

The Isberg Company just paid a dividend of $0.80 per share,and that dividend is expected to grow at a constant rate of 6.00% per year in the future.The company's beta is 1.25,the market risk premium is 5.00%,and the risk-free rate is 4.00%.What is the company's current stock price?

McDonnell Manufacturing is expected to pay a dividend of $1.50 per share at the end of the year (D1 = $1.50) .The stock sells for $34.50 per share,and its required rate of return is 11.5%.The dividend is expected to grow at some constant rate,g,forever.What is the equilibrium expected growth rate?

Assuming that markets are semistrong efficient,which of the following statements is correct?

If D1 = $1.75,g (which is constant) = 4.5%,and P0 = $46,what is the stock's expected dividend yield for the coming year?

Which of the following statements is correct?

A common share just paid a dividend of D0 = $1.75.The required rate of return is rs = 12.0%,and the constant growth rate is g = 4.0%.What is the current share price?

Which statement regarding the efficient markets hypothesis is true?

Ewert Enterprises' stock currently sells for $30.50 per share.The stock's dividend is projected to increase at a constant rate of 4.50% per year.The required rate of return on the stock,rs,is 10.00%.What is Ewert's expected price 3 years from today?

Stock X has a required return of 10%,while Stock Y has a required return of 12%.Which of the following statements is correct?

E.M.Roussakis Inc.'s stock currently sells for $45 per share.The stock's dividend is projected to increase at a constant rate of 3.75% per year.The required rate of return on the stock,rs,is 15.50%.What is Roussakis' expected price 5 years from now?

A stock is expected to pay a dividend of $0.75 at the end of the year.The required rate of return is rs = 12.5%,and the expected constant growth rate is g = 8.5%.What is its current price?

Assume that markets are semistrong efficient,but not strong-form efficient.Which of the following statements is correct?

If D0 = $2.75,g (which is constant) = 3%,and P0 = $36,what is the stock's expected total return for the coming year?

If D₁ = $1.25,g (which is constant) = 5.5%,and P₀ = $44,what is the stock's expected total return for the coming year?

If D₀ = $2.25,g (which is constant) = 3.5%,and P₀ = $50,what is the stock's expected dividend yield for the coming year?

If D₁ = $1.50,g (which is constant) = 6.5%,and P₀ = $56,what is the stock's expected capital gains yield for the coming year?

If D₁ = $1.75,g (which is constant) = 4.5%,and P₀ = $46,what is the stock's expected dividend yield for the coming year?

A common share just paid a dividend of D₀ = $1.75.The required rate of return is r_s = 12.0%,and the constant growth rate is g = 4.0%.What is the current share price?

Ewert Enterprises' stock currently sells for $30.50 per share.The stock's dividend is projected to increase at a constant rate of 4.50% per year.The required rate of return on the stock,r_s,is 10.00%.What is Ewert's expected price 3 years from today?

E.M.Roussakis Inc.'s stock currently sells for $45 per share.The stock's dividend is projected to increase at a constant rate of 3.75% per year.The required rate of return on the stock,r_s,is 15.50%.What is Roussakis' expected price 5 years from now?

A stock is expected to pay a dividend of $0.75 at the end of the year.The required rate of return is r_s = 12.5%,and the expected constant growth rate is g = 8.5%.What is its current price?

If D₀ = $2.75,g (which is constant) = 3%,and P₀ = $36,what is the stock's expected total return for the coming year?