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Test Bank Chapter 9

This document contains sample questions and multiple choice answers about stock valuation concepts including dividend yield, total return, required rate of return, growth rates, and stock pricing. Specifically, it asks the reader to calculate values like expected dividend yield, growth rate, and stock price given information about current dividends, required rates of return, betas, and assumptions about future dividend growth rates.

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Lan Phuong Pham
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1K views

Test Bank Chapter 9

This document contains sample questions and multiple choice answers about stock valuation concepts including dividend yield, total return, required rate of return, growth rates, and stock pricing. Specifically, it asks the reader to calculate values like expected dividend yield, growth rate, and stock price given information about current dividends, required rates of return, betas, and assumptions about future dividend growth rates.

Uploaded by

Lan Phuong Pham
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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CHAPTER 9

STOCKS AND THEIR VALUATION


1, If D1 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stocks expected
dividend yield for the coming year?
a.
b.
c.
d.
e.

5.0%
6.0%
7.0%
8.0%
9.0%

4, If D1 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stocks expected total
return for the coming year?
a.
b.
c.
d.
e.

10.8%
11.0%
11.2%
11.4%
11.6%

10, Hahn Manufacturing is expected to pay a dividend of $1.00 per share at the end of the
year (D1 = $1.00). The stock sells for $40 per share, and its required rate of return is
11%. The dividend is expected to grow at a constant rate, g, forever. What is Hahn's
expected growth rate?
a. 8.00%
b. 8.50%
c. 9.00%
d. 9.50%
e. 10.00%
13, The Lashgari Company is expected to pay a dividend of $1 per share at the end of the
year, and that dividend is expected to grow at a constant rate of 5% per year in the
future. The company's beta is 1.2, the market risk premium is 5%, and the risk-free
rate is 3%. What is the company's current stock price?
a.
b.
c.
d.
e.

$15.00
$20.00
$25.00
$30.00
$35.00

18, Keys Inc's stock has a required rate of return of 10%, and it sells for $40 per share. Keys'
dividend is expected to grow at a constant rate of 7% per year. What was Keys' last
dividend, D0?

a.
b.
c.
d.
e.

$1.12
$1.24
$1.36
$1.48
$1.60

22, Motor Homes Inc. (MHI) is presently enjoying abnormally high growth because of a
surge in the demand for motor homes. The company expects earnings and dividends
to grow at a rate of 20% for the next 4 years, after which there will be no growth (g =
0) in earnings and dividends. The companys last dividend, D0, was $1.50. MHIs
beta is 1.5, the market risk premium is 6%, and the risk-free rate is 4%. What is the
current price of the common stock?

e.

a. $17.51
b. $19.63
c. $21.66
d. $23.57
$25.87

57, You plan to buy a share of XYZ stock today and to hold it for 2 years. Your do not
expect to receive a dividend at the end of Year 1, but you will receive a dividend of
$9.25 at the end of Year 2. In addition, you expect to sell the stock for $150 at the
end of Year 2. If your expected rate of return is 16%, how much should you be
willing to pay for this stock today?
a.
b.
c.
d.
e.

$164.19
$ 75.29
$107.53
$118.35
$131.74

59, Allegheny Publishings stock is expected to pay a year-end dividend, D1, of $4.00. The
dividend is expected to grow at a constant rate of 8% per year, and the stocks
required rate of return is 12%. Given this information, what is the expected price of
the stock, eight years from now?
a.
b.
c.
d.
e.

$200.00
$185.09
$171.38
$247.60
$136.86

74, You are given the following data:


The risk-free rate is 5%.

The required return on the market is 8%.


The expected growth rate for the firm is 4%.
The last dividend paid was $0.80 per share.
Beta is 1.3.

Now assume the following changes occur:


The inflation premium drops by 1%.
An increased degree of risk aversion causes the required return on the market to
rise to 10% after adjusting for the changed inflation premium.
The expected growth rate increases to 6%.
Beta rises to 1.5.
What will be the change in price per share, assuming the stock was in equilibrium
before the changes occurred?
a.
b.
c.
d.
e.

+$12.11
-$ 4.87
+$ 6.28
-$16.97
+$ 2.78

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