Question 1

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) 11ea84dc_f561_2fd3_9a63_759c102b0fcb_TB1316_00_TB1316_00

Question 2

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 3

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.

Question 4

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) P₀using the capital gain rate formula = ($1.70 + $62) / (1 + 0.09) = $58.44; Capital gain = P₁ - P₀ = $62 - $58.44 = $3.56

Question 5

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

Accepted Answer

The answer of Which of the following will be a...

Question 6

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

A limit order is an order to buy or sell a stock at a specific price or better. In the case given, the maximum price is specified, which means it is a limit order. Option A is not a common term used in stock trading, Option C refers to an order placed to buy stock at the current market price or lower, and Option D refers to an order to buy or sell at the current market price.

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 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 is based on the concept of discounted cash flows, where the value of an investment is determined by calculating the PV of the expected future cash flows. In the case of a stock, this includes both the dividends paid over time as well as the expected sale price of the stock at some point in the future. Therefore, the statement "the value of a stock is equal to the present value (PV) of both the dividends and future sale price of that stock" is true.

Question 9

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

Accepted Answer

A floor broker is a person at the New York Stock Exchange (NYSE) with a trading license who represents orders on the floor. The NASDAQ uses electronic communication networks (ECNs), so there are no floor brokers on the NASDAQ.

Question 10

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 11

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) 11ea84dc_f561_08c2_9a63_5db59d9be40a_TB1316_11_TB1316_11

Question 12

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 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, 11ea84dc_f560_e1ad_9a63_1d94c42b1793_TB1316_11_TB1316_11 , 11ea84dc_f561_08be_9a63_b506dd552baf_TB1316_00_TB1316_00 11ea84dc_f561_08bf_9a63_d510a6445957_TB1316_00_TB1316_00 11ea84dc_f561_08c0_9a63_e9888fb9f17b_TB1316_11_TB1316_11 calculate 11ea84dc_f561_08c1_9a63_8b95b89606fa_TB1316_11_TB1316_11

Question 14

A "round lot" consists of how many shares?

Accepted Answer

A "round lot" usually refers to a standard trading unit for stocks, which is typically 100 shares. Therefore, the best choice is C) 100.

Question 15

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

This is true. When individuals or institutions purchase shares of stock in a corporation, they become part owners of the company with a claim to a portion of its profits. This is typically realized through dividend payments, which are distributed to shareholders on a regular basis.

Question 16

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 17

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) ticker symbol is LOGI, which is shown in the figure.

Question 18

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 19

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

Question 20

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.

Quiz 7: Stock Valuation