Question 1

​An increase in investors' required return should cause the value of a common stock to

Accepted Answer

An increase in investors' required return signifies that they demand higher returns on their investments. As a result, the value of a common stock is perceived to be less attractive, and investors would be less likely to purchase it. This increased selling pressure would cause the stock price to fall.

Question 2

If you purchase Large Oil, Inc. for $36 and the firm pays a $3.00 annual dividend which you expect to grow at 7.5 percent, what is the implied annual rate of return on your investment?​

Accepted Answer

The answer of If you purchase Large Oil, Inc. for...

Question 3

​According to the dividend‑growth model, the value of a common stock depends on ​
1) the price of the stock
2) investors' required rate of return
3) the future growth in dividends

Accepted Answer

The dividend-growth model determines the value of a stock based on the investors' required rate of return and the expected future growth in dividends. The price of the stock is what the model aims to calculate, not an input into the model.

Question 4

​If the valuation of a stock is $20 and it currently sells for $25, then ​
1) the stock is undervalued
2) the stock is overvalued
3) the investor should establish a short position
4) the investor should establish a long position

Accepted Answer

If the valuation of a stock is $20 and it currently sells for $25, then the stock is overvalued. An investor should establish a short position to take advantage of the expected decline in the stock price.

Question 5

Two stocks each pay a $1 dividend that is growing annually at 4 percent. Stock A's beta = 1.3; stock B's beta = 0.8.
a. Which stock is more volatile?
b. If Treasury bills yield 2 percent and you expect
the market to rise by 8 percent, what is your
risk-adjusted required return for each stock?
c. Using the dividend-growth model, what is the
maximum price you would be willing to pay for each
stock?
d. Why are their valuations different?
​

Accepted Answer

The answer of Two stocks each pay a $1 dividend...

Question 6

​Your broker recommends that you purchase Good Mills at $34. The stock pays a $2.20 annual dividend, which (like its per share earnings) is expected to grow annually at 3 percent. If you want to earn 9 percent on your funds, is this stock a good buy?

Accepted Answer

The answer of ​Your broker recommends that you purchase Good...

Question 7

When risk analysis is introduced into the dividend‑ growth model, the required rate of return considers

Accepted Answer

When risk analysis is introduced into the dividend-growth model, the required rate of return considers the firm's beta coefficient as it measures the systematic risk of the firm. The higher the beta coefficient, the higher the required rate of return to compensate for the additional risk associated with the stock. The firm's growth rate and dividend history may also factor into the analysis, but they are not directly used to determine the required rate of return. Past dividends are not relevant in this context.

Question 8

​The value of a stock may increase if
1) risk is increased
2) risk is decreased
3) investors' required rate of return increases
4) investors' required rate of return decreases

Accepted Answer

The value of a stock may increase if the investors' required rate of return decreases, which is choice 4. The decrease in the required rate of return signifies that investors are willing to pay more for the stock, increasing its value. On the other hand, an increase in risk, which is choice 1, can lead to a decrease in stock value as investors become more hesitant to invest in the company. Therefore, choice B is incorrect. Finally, choice 2 and 3 are incorrect as a decrease in risk or an increase in required rate of return can lead to a decrease in stock value.

Question 9

​The value of a stock should decline if

Accepted Answer

The value of a stock is determined by its expected future cash flows, which are discounted at the appropriate rate of return. The appropriate rate of return is determined by the level of risk associated with the stock, which is often measured by the stock's beta. If the firm's beta rises, it indicates that the stock has become riskier, and the appropriate rate of return increases, which lowers the value of the stock. Therefore, the correct answer is C.

Question 10

According to the dividend‑growth model, the value of a stock does not depend on​

Accepted Answer

The dividend-growth model only takes into consideration the future dividends and future growth of a stock, as well as the investor's required rate of return. The past dividends do not affect the value of the stock according to this model.

Question 11

What is the annual rate of return on an investment in a common stock that cost $40.50 if the current dividend is $1.50 and the growth in the value of the shares and the dividend is 8 percent?​

Accepted Answer

The answer of What is the annual rate of return...

Question 12

A P/E ratio considers​

Accepted Answer

The P/E ratio, or price-to-earnings ratio, compares the price of a stock to its earnings per share. It is calculated by dividing the current market price per share by the earnings per share. This measure provides insight into how much investors are willing to pay for each dollar of earnings generated by the company, and is commonly used as a valuation metric for stocks. None of the other choices accurately describe the P/E ratio.

Question 13

​A price to book ratio considers

Accepted Answer

A price to book ratio compares the price of a stock to its book value or equity. It is calculated by dividing the price per share by the book value per share. It is a financial ratio used to evaluate a company's financial stability and whether the stock is trading at a fair price in relation to its equity.

Quiz 11: Stock Valuation

An increase in investors' required return should cause the value of a common stock to

If you purchase Large Oil, Inc. for $36 and the firm pays a $3.00 annual dividend which you expect to grow at 7.5 percent, what is the implied annual rate of return on your investment?

According to the dividend‑growth model, the value of a common stock depends on 1) the price of the stock 2) investors' required rate of return 3) the future growth in dividends

If the valuation of a stock is $20 and it currently sells for $25, then 1) the stock is undervalued 2) the stock is overvalued 3) the investor should establish a short position 4) the investor should establish a long position

Your broker recommends that you purchase Good Mills at $34. The stock pays a $2.20 annual dividend, which (like its per share earnings) is expected to grow annually at 3 percent. If you want to earn 9 percent on your funds, is this stock a good buy?

When risk analysis is introduced into the dividend‑ growth model, the required rate of return considers

The value of a stock may increase if 1) risk is increased 2) risk is decreased 3) investors' required rate of return increases 4) investors' required rate of return decreases

The value of a stock should decline if

According to the dividend‑growth model, the value of a stock does not depend on

What is the annual rate of return on an investment in a common stock that cost $40.50 if the current dividend is $1.50 and the growth in the value of the shares and the dividend is 8 percent?

A P/E ratio considers

A price to book ratio considers

Quiz 11: Stock Valuation

​An increase in investors' required return should cause the value of a common stock to

If you purchase Large Oil, Inc. for $36 and the firm pays a $3.00 annual dividend which you expect to grow at 7.5 percent, what is the implied annual rate of return on your investment?​

​According to the dividend‑growth model, the value of a common stock depends on ​ 1) the price of the stock 2) investors' required rate of return 3) the future growth in dividends

​If the valuation of a stock is $20 and it currently sells for $25, then ​ 1) the stock is undervalued 2) the stock is overvalued 3) the investor should establish a short position 4) the investor should establish a long position

​Your broker recommends that you purchase Good Mills at $34. The stock pays a $2.20 annual dividend, which (like its per share earnings) is expected to grow annually at 3 percent. If you want to earn 9 percent on your funds, is this stock a good buy?

When risk analysis is introduced into the dividend‑ growth model, the required rate of return considers

​The value of a stock may increase if 1) risk is increased 2) risk is decreased 3) investors' required rate of return increases 4) investors' required rate of return decreases

​The value of a stock should decline if

According to the dividend‑growth model, the value of a stock does not depend on​

What is the annual rate of return on an investment in a common stock that cost $40.50 if the current dividend is $1.50 and the growth in the value of the shares and the dividend is 8 percent?​

A P/E ratio considers​

​A price to book ratio considers

An increase in investors' required return should cause the value of a common stock to

If you purchase Large Oil, Inc. for $36 and the firm pays a $3.00 annual dividend which you expect to grow at 7.5 percent, what is the implied annual rate of return on your investment?

According to the dividend‑growth model, the value of a common stock depends on 1) the price of the stock 2) investors' required rate of return 3) the future growth in dividends

If the valuation of a stock is $20 and it currently sells for $25, then 1) the stock is undervalued 2) the stock is overvalued 3) the investor should establish a short position 4) the investor should establish a long position

Your broker recommends that you purchase Good Mills at $34. The stock pays a $2.20 annual dividend, which (like its per share earnings) is expected to grow annually at 3 percent. If you want to earn 9 percent on your funds, is this stock a good buy?

The value of a stock may increase if 1) risk is increased 2) risk is decreased 3) investors' required rate of return increases 4) investors' required rate of return decreases

The value of a stock should decline if

According to the dividend‑growth model, the value of a stock does not depend on

What is the annual rate of return on an investment in a common stock that cost $40.50 if the current dividend is $1.50 and the growth in the value of the shares and the dividend is 8 percent?

A P/E ratio considers

A price to book ratio considers