Chapter 8 Complete Test Bank Valuing Stocks

Finance, 5e (Cornett)

Chapter 8 Valuing Stocks

1) Which of these investors earn returns from receiving dividends and from stock price appreciation?

A) bondholders

B) stockholders

C) investment bankers

D) managers

2) As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims?

A) creditors

B) bondholders

C) preferred stockholders

D) common stockholders

3) When residual cash flows are high, stock values will be

A) unchanged.

B) low.

C) high.

D) unpredictable.

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

A) at dealers' trading posts.

B) at brokers' trading posts.

C) at dealers' computers.

D) at market markers.

5) At any given time, the market value of a firm's common stock depends upon:

A) The company's profitability and the growth prospects for the future.

B) The current market interest rates and the conditions in the overall stock market.

C) Both a and b

D) Neither a or b

6) Which of the following characteristics describe the NASDAQ stock market?

A) is an electronic stock market without a physical trading floor.

B) ranks second behind the NYSE in terms of total dollar value.

C) lists approximately 3,900 domestic and foreign companies.

D) All of the above.

7) Why is the ask price higher than the bid price?

A) It represents the gain a market maker achieves.

B) It represents the gain the stock seller achieves.

C) It represents the gain the stock buyer achieves.

D) It represents the gain all participants will achieve.

8) The Dow Jones Industrial Average (DJIA) includes

A) all of the stock listed on the New York 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.

9) The Standard & Poor's 500 Index includes

A) all of the stock listed on the New York 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.

10) The NASDAQ Composite includes

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.

11) Which of the following will only be executed if the order's price conditions are met?

A) a trade

B) a limit order

C) an unlimited order

D) a spread

12) Investors buy stock at the

A) dealer price.

B) bid price.

C) quoted ask price.

D) broker price.

13) Investors sell stock at the

A) dealer price.

B) bid price.

C) quoted ask price.

D) broker price.

14) Which of these are valued as a special zero-growth case of the constant growth rate model?

A) common stock

B) preferred stock

C) future dividends

D) future stock prices

15) The dividend discount model:

A) is a valuation approach based on future dividend income.

B) is a hybrid security that has characteristics of both long-term debt and common stock.

C) expects to have above average rates of growth in revenue, earnings, and/or dividends.

D) none of the above.

16) Stock valuation model dynamics make clear that lower discount rates lead to

A) lower valuations.

B) higher valuations.

C) lower growth rates.

D) higher growth rates.

17) Stock valuation model dynamics make clear that higher growth rates lead to

A) lower valuations.

B) higher valuations.

C) lower growth rates continuing.

D) higher growth rates continuing.

18) We can estimate a stock's value by

A) using the book value of the total stockholder equity section.

B) discounting the future dividends and future stock price appreciation.

C) compounding the past dividends and past stock price appreciation.

D) using the book value of the total assets divided by the number of shares outstanding.

19) Many companies grow very fast at first, but slower future growth can be expected. Such companies are called

A) Fortune 500 companies.

B) blue chip companies.

C) variable growth rate firms.

D) constant growth rate firms.

20) A variable growth rate:

A) is a valuation technique used when a firm's current growth rate is expected to change sometime in the future.

B) combines the present-value cash flow equation and the constant-growth-rate model equation.

C) both a and b

D) neither a or b

21) We often use the P/E ratio model with the firm's growth rate to estimate

A) required rates of return.

B) inflation.

C) a stock's current price.

D) a stock's future price.

22) When reviewing a stock's price measured to other stocks, you are assessing a stock's:

A) price/earnings (P/E) ratio

B) relative value

C) value stocks

D) none of the above.

23) Value stocks usually have

A) low P/E ratios and high growth rates.

B) high P/E ratios and low growth rates.

C) low P/E ratios and low growth rates.

D) high P/E ratios and high growth rates.

24) Dividend yield is defined as

A) the last four quarters of dividend income expressed as a percentage of the par value of the stock.

B) the last four quarters of dividend income expressed as a percentage of the current stock price.

C) the last dividend paid expressed as a percentage of the current stock price.

D) the next dividend to be paid expressed as a percentage of the current stock price.

25) 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

A) market capitalization.

B) book value.

C) market makers.

D) constant growth model.

26) If on November 26, 2017, The Dow Jones Industrial Average closed at 12,743.40, which was down 237.44 that day. What was the return (in percent) of the stock market that day?

A) −0.02 percent

B) +0.02 percent

C) −1.83 percent

D) +1.83 percent

27) If on November 27, 2017, The Dow Jones Industrial Average closed at 12,958.44, which was up 215.04 that day. What was the return (in percent) of the stock market that day?

A) −0.017 percent

B) +0.017 percent

C) −1.69 percent

D) +1.69 percent

28) At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 100 shares of Ralph Lauren (RL), which trades at $85.13?

A) $8,503.05

B) $8,503.00

C) $8,522.95

D) $9,508.00

29) At your discount brokerage firm, it costs $8.50 per stock trade. How much money do you need to buy 200 shares of Apple (AAPL), which trades at $171.54?

A) $32,608.00

B) $34,299.50

C) $34,316.50

D) $36,008.00

30) 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?

A) $2,152.00

B) $2,262.00

C) $2,372.00

D) $2,388.20

31) At your full-service brokerage firm, it costs $120 per stock trade. How much money do you receive after selling 200 shares of Ralph Lauren (RL), which trades at $85.13?

A) $16,546.00

B) $16,906.00

C) $17,026.00

D) $17,146.00

32) You would like to buy shares of International Business Machines (IBM). The current bid and ask quotes are $96.17 and $96.24, respectively. You place a market buy-order for 100 shares that executes at these quoted prices. How much money did it cost to buy these shares?

A) $7.00

B) $9,617.00

C) $9,624.00

D) $19,241.00

33) 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?

A) $6.00

B) $6,039.00

C) $6,045.00

D) $12,084.00

34) You would like to sell 100 shares of Pfizer, Inc. (PFE). The current bid and ask quotes are $27.22 and $27.25, respectively. You place a limit sell-order at $27.24. If the trade executes, how much money do you receive from the buyer?

A) $2,722.00

B) $2,724.00

C) $2,725.00

D) $5,446.00

35) You would like to sell 400 shares of International Business Machines (IBM). The current bid and ask quotes are $96.24 and $96.17, respectively. You place a limit sell-order at $96.20. If the trade executes, how much money do you receive from the buyer?

A) $38,464.00

B) $38,468.00

C) $38,480.00

D) $38,496.00

36) If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 7 percent, what's the value of the stock?

A) $0.21

B) $0.43

C) $21.00

D) $42.86

37) If a preferred stock from Ecology and Environment, Inc. (EEI) pays $2.50 in annual dividends, and the required return on the preferred stock is 5.8 percent, what's the value of the stock?

A) $0.15

B) $0.43

C) $14.50

D) $43.10

38) International Business Machines (IBM) has earnings per share of $6.85 and a P/E ratio of 15.19. What is the stock price?

A) $0.45

B) $2.22

C) $45.09

D) $104.05

39) Pfizer, Inc. (PFE) has earnings per share of $2.09 and a P/E ratio of 11.02. What is the stock price?

A) $0.19

B) $5.27

C) $18.97

D) $23.03

40) Ralph Lauren (RL) has earnings per share of $3.85 and a P/E ratio of 17.37. What is the stock price?

A) $0.22

B) $4.51

C) $22.16

D) $66.87

41) 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.

A) $65.40

B) $66.67

C) $65.57

D) $79.14

42) A firm is expected to pay a dividend of $3.00 next year and $3.21 the following year. Financial analysts believe the stock will be at their target price of $80.00 in two years. Compute the value of this stock with a required return of 13 percent.

A) $50.00

B) $67.52

C) $67.82

D) $86.21

43) Annual dividends of Walmart Stores (WMT) grew from $0.23 in 2000 to $0.83 in 2007. What was the annual growth rate?

A) 2.61 percent

B) 20.12 percent

C) 37.29 percent

D) 260.87 percent

44) Annual dividends of Pfizer, Inc. (PFE) grew from $0.38 in 2000 to $1.15 in 2007. What was the annual growth rate?

A) 2.02 percent

B) 17.14 percent

C) 28.95 percent

D) 202.63 percent

45) Financial analysts forecast Best Buy Company (BBY) growth for the future to be 13 percent. Their recent dividend was $0.49. What is the value of their stock when the required rate of return is 14.13 percent?

A) $3.92

B) $4.90

C) $43.36

D) $49.00

46) 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?

A) $5.25

B) $6.48

C) $58.43

D) $64.85

47) American Eagle Outfitters (AEO) recently paid a $0.38 dividend. The dividend is expected to grow at a 15.5 percent rate. At the current stock price of $24.07, what is the return shareholders are expecting?

A) 15.50 percent

B) 15.52 percent

C) 17.08 percent

D) 17.32 percent

48) The Buckle (BKE) recently paid a $0.90 dividend. The dividend is expected to grow at a 19 percent rate. At the current stock price of $43.17, what is the return shareholders are expecting?

A) 19.00 percent

B) 19.02 percent

C) 21.48 percent

D) 22.74 percent

49) Home Depot (HD) recently paid a $0.90 dividend. The dividend is expected to grow at a 17 percent rate. At the current stock price of $33.08, what is the return shareholders are expecting?

A) 2.70 percent

B) 17.03 percent

C) 17.18 percent

D) 20.18 percent

50) A firm does not pay a dividend. It is expected to pay its first dividend of $0.10 per share in two years. This dividend will grow at 11 percent indefinitely. Using a 13 percent discount rate, compute the value of this stock.

A) $4.42

B) $4.59

C) $5.43

D) $7.21

51) A firm does not pay a dividend. It is expected to pay its first dividend of $0.15 per share in three years. This dividend will grow at 9 percent indefinitely. Using a 10 percent discount rate, compute the value of this stock.

A) $12.28

B) $12.40

C) $16.35

D) $16.50

52) Walmart (WMT) recently earned a profit of $3.13 per share and has a P/E ratio of 14.22. The dividend has been growing at a 12.5 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio declined to 10 in five years?

A) $6.08, $5.04 respectively

B) $72.22, $50.40 respectively

C) $80.20, $56.40 respectively

D) $86.46, $60.80 respectively

53) Target Corp. (TGT) recently earned a profit of $3.57 earnings per share and has a P/E ratio of 17.3. The dividend has been growing at a 14 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 23 in five years?

A) $118.85, $158.01 respectively

B) $137.19, $182.39 respectively

C) $173.87, $231.15 respectively

D) $308.81, $410.55 respectively

54) A firm recently paid a $1.00 annual dividend. The dividend is expected to increase by 10 percent in each of the next four years. In the fourth year, the stock price is expected to be $100. If the required rate for this stock is 14 percent, what is its value?

A) $25.00

B) $36.60

C) $62.87

D) $72.30

55) A firm recently paid a $0.30 annual dividend. The dividend is expected to increase by 8 percent in each of the next four years. In the fourth year, the stock price is expected to be $60. If the required rate for this stock is 10 percent, what is its value?

A) $15.00

B) $20.41

C) $42.13

D) $45.30

56) Best Buy Co. (BBY) paid a $0.27 dividend per share in 2013, which grew to $0.49 in 2017. This growth is expected to continue. What is the value of this stock at the beginning of 2017 when the required rate of return is 17.23 percent?

A) $2.84

B) $42.24

C) $49.03

D) $50.78

57) Target Corp. (TGT) paid a $0.21 dividend per share in 2010, which grew to $0.52 in 2017. This growth is expected to continue. What is the value of this stock at the beginning of 2017 when the required rate of return is 14.77 percent?

A) $3.52

B) $55.32

C) $62.97

D) $63.49

58) 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)?

A) $25, 1 percent

B) $25, 100 percent

C) $28.50, 1.04 percent

D) $28.50, 104 percent

59) Consider a firm that had been priced using a 6 percent growth rate and a 9 percent required rate. The firm recently paid a $0.50 dividend. The firm has just announced that because of a new joint venture, it will likely grow at an 8 percent rate. How much should the stock price change (in dollars and percentage)?

A) $33.33, 67 percent

B) $33.33, 198 percent

C) $36.33, 67 percent

D) $36.33, 206 percent

60) A fast growing firm recently paid a dividend of $0.50 per share. The dividend is expected to increase at a 25 percent rate for the next 3 years. Afterwards, a more stable 12 percent growth rate can be assumed. If a 15 percent discount rate is appropriate for this stock, what is its value?

A) $5.00

B) $22.62

C) $25.75

D) $36.46

61) A fast growing firm recently paid a dividend of $1.00 per share. The dividend is expected to increase at a 25 percent rate for the next three years. Afterwards, a more stable 8 percent growth rate can be assumed. If a 10 percent discount rate is appropriate for this stock, what is its value?

A) $12.50

B) $75.93

C) $83.13

D) $120.24

62) Suppose that a firm's recent earnings per share and dividends per share are $3.00 and $1.50, respectively. Both are expected to grow at 10 percent. However, the firm's current P/E ratio of 20 seems high for this growth rate. The P/E ratio is expected to fall to 16 within five years. Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years. Then discount these cash flows using a 14 percent required rate.

A) $31.68

B) $40.15

C) $46.89

D) $60.00

63) Suppose that a firm's recent earnings per share and dividends per share are $2.50 and $1.00, respectively. Both are expected to grow at 10 percent. However, the firm's current P/E ratio of 22 seems high for this growth rate. The P/E ratio is expected to fall to 18 within five years. Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years. Then discount these cash flows using a 14 percent required rate.

A) $37.51

B) $37.64

C) $42.14

D) $72.47

64) At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 200 shares of General Electric (GE), which trades at $45.19?

A) $9,038.00

B) $4,528.95

C) $9,047.95

D) $4,595.95

65) At your discount brokerage firm, it costs $7.95 per stock trade. How much money do you receive after selling 250 shares of General Electric (GE), which trades at $55.19?

A) $14,037.95

B) $11,958.55

C) $12,174.95

D) $13,789.55

66) A preferred stock from DLC pays $3.00 in annual dividends. If the required return on the preferred stock is 9.3 percent, what is the value of the stock?

A) $34.89

B) $32.26

C) $38.49

D) $31.13

67) Ultra Petroleum (UPL) has earnings per share of $1.75 and P/E of 42.56. What is the stock price?

A) $74.48

B) $76.68

C) $85.68

D) $112.98

68) JPM has earnings per share of $3.75 and P/E of 47. What is the stock price?

A) $174.08

B) $176.25

C) $185.95

D) $112.98

69) A firm is expected to pay a dividend of $2.00 next year and $3.75 the following year. Financial analysts believe the stock will be at their price target of $125.00 in two years. Compute the value of this stock with a required rate of return of 15 percent.

A) $78.34

B) $81.05

C) $87.13

D) $99.09

70) Financial analysts forecast ABC Inc. growth for the future to be 12 percent. ABC's recent dividend was $1.60. What is the value of ABC stock when the required return is 15 percent?

A) $59.73

B) $63.72

C) $79.81

D) $91.02

71) A fast growing firm recently paid a dividend of $0.80 per share. The dividend is expected to increase at a rate of 30 percent for the next four years. Afterwards, a more stable 7 percent growth rate can be assumed. If a 10 percent discount rate is appropriate for this stock, what is its value?

A) $60.48

B) $60.18

C) $61.34

D) $73.86

72) A fast growing firm recently paid a dividend of $1.00 per share. The dividend is expected to increase at a rate of 15 percent for the next 3 years. Afterwards, a more stable 6 percent growth rate can be assumed. If a 10 percent discount rate is appropriate for this stock, what is its value?

A) $33.54

B) $37.99

C) $39.37

D) $42.03

73) A firm recently paid a $0.50 annual dividend. The dividend is expected to increase by 10 percent in each of the next three years. In the third year, the stock price is expected to be $110. If the required return is 15 percent, what is its value?

A) $62.53

B) $68.95

C) $73.71

D) $78.67

74) Campbell Soup Co. paid a $1.55 dividend per share in 2012, which grew to $1.95 in 2017. This growth is expected to continue. What is the value of this stock at the beginning of 2017 when the required return is 10.5 percent?

A) $35.20

B) $34.16

C) $33.48

D) $32.17

75) Consider a firm that had been priced using a 12 percent growth rate and a 16 percent required return. The firm recently paid a $5.00 dividend. The firm has just announced that because of a new joint venture, it will likely grow at a 12.5 percent rate. How much should the stock price change (in dollars and percentage)?

A) $21.50; 13.72 percent

B) $21.50; 16.14 percent

C) $20.71; 14.79 percent

D) $20.71; 19.93 percent

76) Suppose that a firm's recent earnings per share and dividend per share are $2.50 and $1.00, respectively. Both are expected to grow at 5 percent. However, the firm's current P/E ratio of 23 seems high for this growth rate. The P/E ratio is expected to fall to 19 within five years. Compute a value for this stock. Assume a 10 percent required rate.

A) $36.19

B) $38.86

C) $40.31

D) $42.00

77) A firm has been losing sales due to technological obsolescence. It projects growth for the future to be −2 percent. Its recent dividend was $2.00. What is the value of this stock when the required return is 9 percent?

A) $28.00

B) $29.14

C) $17.82

D) $15.52

78) 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?

A) $28.17

B) $24.25

C) $17.42

D) $15.53

79) To list a stock on the NYSE, a company must meet minimum requirements that include all of the following EXCEPT

A) firm size.

B) total number of stockholders.

C) level of trading volume.

D) P/E ratio.

80) Which of the following is an electronic stock market without a physical trading floor?

A) American Stock Exchange

B) Mercantile Exchange

C) New York Stock Exchange

D) Nasdaq Stock Market

81) Individuals who use their own stock inventory and capital to buy and sell the stocks they represent are called

A) market makers.

B) brokers.

C) investors.

D) none of the options.

82) All of the following are stock market indices EXCEPT

A) Standard & Poor's 500 Index.

B) Dow Jones Industrial Average.

C) Nasdaq Composite Index.

D) Mercantile 1000.

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

A) $89,250,000,000

B) $89,250,000

C) $892,500,000

D) $892,500

84) GEN has 1 million shares outstanding and a P/E ratio of 12. Its earnings per share is $2.00. What is GEN's market capitalization?

A) $24,000,000

B) $12,000,000

C) $2,000,000

D) $96,000,000

85) GEN has 3 million shares outstanding and a P/E ratio of 15. Its earnings per share is $3.00. What is GEN's market capitalization?

A) $45,000,000

B) $135,000,000

C) $112,000,000

D) $9,000,000

86) ABC has a net profit margin of 3.3 percent on sales of $10,000,000. The firm has 50,000 shares outstanding. If the firm's P/E is 19 times, how much is the stock selling for?

A) $41.72

B) $34.96

C) $125.40

D) $99.16

87) ABC has a net profit margin of 4.3 percent on sales of $12,000,000. The firm has 250,000 shares outstanding. If the firm's P/E is 16 times, how much is the stock selling for?

A) $41.72

B) $35.96

C) $25.40

D) $33.02

88) Which of the following indices best reflects the ten sectors of the economy?

A) Nasdaq Composite

B) Dow Jones Industrial Average

C) Standard & Poor's 500

D) None of the options

89) Studies of investor psychology have discovered that

A) investors tend to trade too much.

B) investors tend to sell their winners too soon.

C) investors tend to become overconfident.

D) All of these choices are correct.

90) Sally has researched GLE and wants to pay no more than $50 for the stock. Currently, GLE is trading in the market for $54. Sally would be best served to

A) buy using a limit order.

B) buy using a market order.

C) use the bid-ask spread to her advantage.

D) None of the options.

91) Which of the following is incorrect with respect to limit orders?

A) They can be used only to buy stock.

B) If the current quote does not meet the price cited in the limit order, the trade is not executed.

C) The advantage of the limit order is that the investor makes the trade at the desired price.

D) The disadvantage of the limit order is that the trade might not be executed at all.

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

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 these choices are correct.

93) JUJU's dividend next year is expected to be $1.50. It is trading at $45 and is expected to grow at 9 percent per year. What is JUJU's dividend yield and capital gain?

A) 1.5 percent; 6 percent

B) 9 percent; 3.33 percent

C) 3.33 percent; 9 percent

D) 6 percent; 1.5 percent

94) JUJU's dividend next year is expected to be $5.50. It is trading at $45 and is expected to grow at 4 percent per year. What is JUJU's dividend yield and capital gain?

A) 2.5 percent; 6 percent

B) 12.22 percent; 4 percent

C) 4 percent; 12.22 percent

D) 6 percent; 2.5 percent

95) Value stocks are

A) stocks that are expected to exhibit high growth.

B) stocks that have low P/E ratios and are selling at a bargain price.

C) stocks that have high valuation ratios, such as P/E.

D) none of the options.

96) A firm does not pay any dividends at this point in time. Which valuation method should be used on this stock?

A) Residual Claimant Model

B) Variable Growth Model

C) P/E Ratio Model

D) Capital Gain Model

97) Which of the following statements is incorrect?

A) Trading at the New York Stock Exchange and the American Stock Exchange are done by open outcry.

B) Dealers create market liquidity in the Nasdaq's electronic market.

C) The Dow Jones Industrial Average includes 35 of the largest companies in the United States.

D) The Nasdaq contains many very large technology firms.

98) A firm is expected to pay a $4.00 dividend per share. The stock is selling in the market place for $55.00 per share. If investors are demanding 12 percent on this stock, what is this stock's growth rate?

A) 4.73 percent

B) 7.25 percent

C) 5.91 percent

D) 6.14 percent

99) A firm is expected to pay a $2.00 dividend per share. The stock is selling in the market place for $50.00 per share. If investors are demanding 10 percent on this stock, what is this stock's growth rate?

A) 4.73 percent

B) 5.92 percent

C) 6.00 percent

D) 7.29 percent

100) A firm's recent dividend was $2.00 per share. The stock is selling in the market place for $50.00 per share. If investors are demanding 10 percent on this stock, what is this stock's growth rate?

A) 4.73 percent

B) 5.92 percent

C) 6.00 percent

D) 5.77 percent

101) A firm's recent dividend was $4.00 per share. The stock is selling in the market place for $55.00 per share. If investors are demanding 12 percent on this stock, what is this stock's growth rate?

A) 4.73 percent

B) 4.41 percent

C) 5.91 percent

D) 6.14 percent

102) A stock is expected to pay a $1.00 dividend per share. The growth rate is expected to be 4 percent. If investors demand 10 percent on this stock, what is the expected price of the stock 10 years from now?

A) $24.68

B) $22.17

C) $25.00

D) $26.93

103) A stock is expected to pay a $4.00 dividend per share. The growth rate is expected to be 5 percent. If investors demand 10 percent on this stock, what is the expected price of the stock 10 years from now?

A) $94.68

B) $92.17

C) $130.31

D) $126.93

104) A stock is expected to pay a $4.00 dividend per share. The growth rate is expected to be −1 percent. If investors demand 8 percent on this stock, what is the expected price of the stock three years from now?

A) $54.68

B) $52.17

C) $41.06

D) $43.12

105) A stock is expected to pay a $5.00 dividend per share. The growth rate is expected to be −2 percent. If investors demand 8 percent on this stock, what is the expected price of the stock five years from now?

A) $54.68

B) $45.20

C) $41.06

D) $53.12

106) A firm's stock is selling at $95.00 per share. Its growth rate is 10 percent and investors demand 15 percent on this stock. What is the firm's expected dividend?

A) $4.75

B) $5.95

C) $6.25

D) $5.50

107) 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?

A) $4.75

B) $5.95

C) $6.25

D) $5.25

108) Which of the following statements is incorrect?

A) Preferred stock prices fluctuate with market interest rates and behave like corporate bond prices.

B) Common stock prices changes with the value of the company's underlying business.

C) Preferred stockholders have higher precedence for repayment than common stock in the event of firm liquidation from bankruptcy.

D) All of these choices are correct.

109) A stock recently paid a dividend of $3 per share. Its growth rate is expected to be 8 percent. Investors require a 10 percent return. The stock is selling in the market for $140. What is this stock worth and is the stock undervalued or overvalued?

A) $162; undervalued

B) $162; overvalued

C) $150; undervalued

D) $150; overvalued

110) A stock recently paid a dividend of $2.5 per share. Its growth rate is expected to be 8 percent. Investors require a 10 percent return. The stock is selling in the market for $150. What is this stock worth and is the stock undervalued or overvalued?

A) $125; undervalued

B) $125; overvalued

C) $135; undervalued

D) $135; overvalued

111) Laura is considering two investments: Stock A and B. Both stocks have a P/E ratio of 19. Stock A has an expected growth rate of 5 percent and stock B has an expected growth rate of 13 percent. Which is the better stock and why?

A) Stock B is better because it is considered to be cheaper than Stock A.

B) Stock A is better because it is expected to grow at a slower rate and therefore will be less risky than Stock B.

C) Since the P/E ratios are the same, Laura would be indifferent between the two stocks.

D) None of these choices are correct.

112) Coca-Cola recently paid a $3.00 dividend. Investors expect a 12 percent return on this stock. What is the difference in price if Coca-Cola is expected to grow at 6 percent versus 8 percent?

A) $18

B) $48

C) $28

D) $38

113) Coca-Cola recently paid a $3.00 dividend. Investors expect a 12 percent return on this stock. What is the difference in price if Coca-Cola is expected to grow at 7 percent versus 8 percent?

A) $11.40

B) $16.80

C) $21.60

D) $19.40

114) Coca-Cola recently paid a $3.00 dividend. Investors expect a 12 percent return on this stock. What is the percentage change in price if Coca-Cola is expected to grow at 7 percent versus 8 percent?

A) 31.29 percent

B) 19.82 percent

C) 21.60 percent

D) 26.17 percent

115) 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.

A) $12.76

B) $12.19

C) $11.96

D) $11.39

116) A firm does not pay a dividend. It is expected to pay its first dividend of $1.50 per share in three years. This dividend will grow at 6 percent indefinitely. Using a 10 percent discount rate, compute the value of this stock.

A) $29.86

B) $30.99

C) $41.25

D) $42.79

117) Suppose that a firm's recent earnings per share and dividends per share are $5.00 and $1.00, respectively. Both are expected to grow at 5 percent. However, the firm's current P/E ratio of 18 seems high for this growth rate. The P/E ratio is expected to fall to 10 within five years. Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years. Then discount these cash flows using a 12 percent required rate.

A) $32.51

B) $40.35

C) $50.00

D) $63.81

118) You would like to buy shares of International Business Machines (IBM). The current bid and ask quotes are $103.25 and $103.30, respectively. You place a market buy-order for 200 shares that executes at these quoted prices. How much money did it cost to buy these shares?

A) $10,330.00

B) $20,650.00

C) $20,660.00

D) None of these choices are correct.

119) You would like to buy shares of Nokia (NOK). The current bid and ask quotes are $25.43 and $25.45, respectively. You place a market buy-order for 150 shares that executes at these quoted prices. How much money did it cost to buy these shares?

A) $1,908.75

B) $3,815.50

C) $3,817.50

D) None of these choices are correct.

120) If Walmart (WMT) recently earned a profit of $5.10 per share and has a P/E ratio of 16.25. The dividend has been growing at a 6 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio declined to 12 in five years?

A) $41.44, $30.60 respectively

B) $82.88, $61.20 respectively

C) $110.91, $81.90 respectively

D) $414.38, $306.00 respectively

121) If Target Corp. (TGT) recently earned a profit of $6.07 earnings per share and has a P/E ratio of 16.5. The dividend has been growing at a 10 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 18 in five years?

A) $100.16, $109.26 respectively

B) $161.30, $175.96 respectively

C) $259.78, $283.39 respectively

D) $261.30, $275.96 respectively

122) At your discount brokerage firm, it costs $10.50 per stock trade. How much money do you need to buy 100 shares of Apple (AAPL), which trades at $202.64?

A) $20,253.50

B) $20,264.00

C) $20,274.50

D) $21,314.00

123) At your full-service brokerage firm, it costs $125 per stock trade. How much money do you receive after selling 200 shares of Time Warner, Inc. (TMX), which trades at $29.54?

A) $5,783.00

B) $5,908.00

C) $6,033.00

D) $19,092.00

124) 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?

A) $6.31

B) $42.15

C) $47.25

D) $240.97