Question 1

Matilda Industries pays a dividend of $2.10 per share and is expected to pay this amount indefinitely. If Matilda's equity cost of capital is 9%, which of the following would be closest to Matilda's stock price?

Accepted Answer

C) PV0 = $2.10 / 0.09 = $23.33

Question 2

Use the figure for the question(s) below. 
-The above screen shot from Google Finance shows the basic stock information for Logitech International SA (USA). What is Logitech International SA (USA)'s ticker symbol?

Accepted Answer

Logitech International SA (USA)'s ticker symbol is LOGI, as shown in the figure. LIS, LOG, and LOGITECH are not the correct ticker symbols for this company.

Question 3

The above screen shot from Google Finance shows basic stock information for PepsiCo. If you owned 
Of PepsiCo for the period shown, how much would you have earned in dividend payments?

Accepted Answer

D) 1600 × $0.43 = $688.00

Question 4

The Busby Corporation had a share price at the start of the year of $26.10, paid a dividend of $0.59 at the end of the year, and had a share price of $29.50 at the end of the year. Which of the following is closest to the rate of return of investments in companies with equal risk to The Busby Corporation for this period?

Accepted Answer

D) $29.50 + $0.59 - $26.10 = $3.99;
$3.99 / $26.10 = 15.29%; rounded to 15%

Question 5

A stock is bought for $23.00 and sold for $27.00 one year later, immediately after it has paid a dividend of $1.50. What is the capital gain rate for this transaction?

Accepted Answer

D) 11eaabab_c0a5_5810_b90e_9d17b0f2a365_TB5536_11

Question 6

A "round lot" consists of how many shares?

Accepted Answer

A "round lot" consists of 100 shares. A "odd lot" consists of any number of shares less than 100. Option A is too small and Option B is too specific. Option D is too large.

Question 7

What role do dividends play in stock investing?

Accepted Answer

The answer of What role do dividends play in stock...

Question 8

The ownership in a corporation is divided into shares of stock, which carry rights to a share in the profits of the firm through future dividend payments.

Accepted Answer

The ownership in a corporation is indeed divided into shares of stock that represent a proportional interest in the firm's assets and earnings, including the right to receive future dividends when they are declared by the board of directors.

Question 9

Credenza Industries is expected to pay a dividend of $1.70 at the end of the coming year. It is expected to sell for $62 at the end of the year. If its equity cost of capital is 9%, what is the expected capital gain from the sale of this stock at the end of the coming year?

Accepted Answer

A) P0 using the capital gain rate formula = ($1.70 + $62) / (1 + 0.09) = $58.44;
Capital gain = P1 - P0 = $62 - $58.44 = $3.56

Question 10

Use the figure for the question(s) below. 
-The above screen shot from Google Finance shows the price history of Progenics, a pharmaceutical company. In the time period shown, Progenics released information that an intravenously-administered formulation of their leading product had failed in a Phase III clinical trial. In which of the months shown in the price history is this most likely to have occurred?

Accepted Answer

The most likely month for the release of the negative trial results is March 2008, as it shows a significant drop in the stock price, which is a common reaction to negative news about a company's key product, especially when it fails in a late-stage clinical trial.

Question 11

Use the figure for the question(s) below. 
-The above screen shot from Google Finance shows the basic stock information for Kraft Foods Inc. after the close of the stock market on May 30, 2008. What is the highest that the stock has traded at in the last 12 months?

Accepted Answer

The highest point on the blue line (which represents the stock price) on the right side of the graph corresponds to $35.29, which is higher than all the other options given.

Question 12

Owen Inc. has a current stock price of $15.00 and is expected to pay a $0.80 dividend in one year. If Owen's equity cost of capital is 12%, what price would its stock be expected to sell for immediately after it pays the dividend?

Accepted Answer

D) (1 + 0.12) × $15.00 = $16.80;
$16.80 - $0.80 = $16.00

Question 13

Coolibah Holdings is expected to pay dividends of $1.20 every six months for the next three years. If the current price of Coolibah stock is $22.60, and Coolibah's equity cost of capital is 18%, what price would you expect Coolibah's stock to sell for at the end of three years?

Accepted Answer

A) Using a financial calculator, 11eaabab_c0a5_30fa_b90e_2f06c172f8be_TB5536_11 , 11eaabab_c0a5_30fb_b90e_35a3c0986b07_TB5536_11 11eaabab_c0a5_30fc_b90e_65939946f0c1_TB5536_11 11eaabab_c0a5_30fd_b90e_07531fe34004_TB5536_11 calculate 11eaabab_c0a5_30fe_b90e_c1cd732af4eb_TB5536_11

Question 14

Jumbuck Exploration has a current stock price of $3.00 and is expected to sell for $3.15 in one year's time, immediately after it pays a dividend of $0.28. Which of the following is closest to Jumbuck Exploration's equity cost of capital?

Accepted Answer

C) 11eaabab_c0a5_580f_b90e_81b614638db7_TB5536_11

Question 15

The Valuation Principle states that the value of a stock is equal to the present value (PV) of both the dividends and future sale price of that stock which the investor will receive.

Accepted Answer

The Valuation Principle states that the value of a stock is equal to the present value (PV) of both the dividends and future sale price of that stock which the investor will receive.

Question 16

What are dividend payments?

Accepted Answer

Dividend payments are a share of the profits paid to each shareholder on the basis of the number of shares they hold. This means that if a company earns a profit, they may choose to distribute a portion of that profit to shareholders as a dividend payment. This is often done as a way to reward investors and encourage them to continue holding onto their shares in the company.

Question 17

You placed an order to purchase stock where you specified the maximum price you were willing to pay. This type of order is known as a ________.

Accepted Answer

This type of order is known as a limit order, where the investor specifies the maximum price they are willing to pay for the stock. The order will only be executed if the stock is available at or below the specified price. A market order, on the other hand, is an order to buy or sell a stock at the best available price at the time the order is placed. Maximum order and floor order are not commonly used terms in finance.

Question 18

A floor broker is a person at the NASDAQ with a trading license who represents orders on the floor.

Accepted Answer

This definition is incorrect for NASDAQ. Floor brokers are associated with traditional stock exchanges that have physical trading floors, while NASDAQ is entirely electronic. Instead, NASDAQ has market makers who facilitate trades and represent orders on the system.

Question 19

Which of the following will be a source of cash flows for a shareholder of a certain stock?
I. Sale of the shares at a future date
II. The firm in which the shares are held paying out cash to shareholders in the form of dividends
III. The firm in which the shares are held increasing the total number of shares outstanding through a stock split

Accepted Answer

Selling shares and receiving dividends are direct sources of cash flows for shareholders. A stock split does not provide cash flow.

Question 20

Use the figure for the question(s) below. 
-The above screen shot from Google Finance shows the basic stock information for Logitech International SA (USA) after the close of business on August 22, 2008. What is the difference between the opening and closing price of the stock on this date?

Accepted Answer

C) $26.30 - $26.06 = $0.24

Quiz 7: Stock Valuation

Matilda Industries pays a dividend of $2.10 per share and is expected to pay this amount indefinitely. If Matilda's equity cost of capital is 9%, which of the following would be closest to Matilda's stock price?

Use the figure for the question(s) below. -The above screen shot from Google Finance shows the basic stock information for Logitech International SA (USA) . What is Logitech International SA (USA) 's ticker symbol?

The above screen shot from Google Finance shows basic stock information for PepsiCo. If you owned Of PepsiCo for the period shown, how much would you have earned in dividend payments?

A stock is bought for $23.00 and sold for $27.00 one year later, immediately after it has paid a dividend of $1.50. What is the capital gain rate for this transaction?

A "round lot" consists of how many shares?

What role do dividends play in stock investing?

The ownership in a corporation is divided into shares of stock, which carry rights to a share in the profits of the firm through future dividend payments.

Credenza Industries is expected to pay a dividend of $1.70 at the end of the coming year. It is expected to sell for $62 at the end of the year. If its equity cost of capital is 9%, what is the expected capital gain from the sale of this stock at the end of the coming year?

Use the figure for the question(s) below. -The above screen shot from Google Finance shows the basic stock information for Kraft Foods Inc. after the close of the stock market on May 30, 2008. What is the highest that the stock has traded at in the last 12 months?

Owen Inc. has a current stock price of $15.00 and is expected to pay a $0.80 dividend in one year. If Owen's equity cost of capital is 12%, what price would its stock be expected to sell for immediately after it pays the dividend?

Coolibah Holdings is expected to pay dividends of $1.20 every six months for the next three years. If the current price of Coolibah stock is $22.60, and Coolibah's equity cost of capital is 18%, what price would you expect Coolibah's stock to sell for at the end of three years?

Jumbuck Exploration has a current stock price of $3.00 and is expected to sell for $3.15 in one year's time, immediately after it pays a dividend of $0.28. Which of the following is closest to Jumbuck Exploration's equity cost of capital?

The Valuation Principle states that the value of a stock is equal to the present value (PV) of both the dividends and future sale price of that stock which the investor will receive.

What are dividend payments?

You placed an order to purchase stock where you specified the maximum price you were willing to pay. This type of order is known as a ________.

A floor broker is a person at the NASDAQ with a trading license who represents orders on the floor.

Use the figure for the question(s) below. -The above screen shot from Google Finance shows the basic stock information for Logitech International SA (USA) after the close of business on August 22, 2008. What is the difference between the opening and closing price of the stock on this date?