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Exam 9: Stocks and Their Valuation

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Question 51

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A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price?

A) $17.39
B) $17.84
C) $18.29
D) $18.75
E) $19.22

F) C) and D)
G) A) and E)

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Question 52

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Schnusenberg Corporation just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?

A) $14.52
B) $14.89
C) $15.26
D) $15.64
E) $16.03

F) A) and B)
G) A) and E)

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Question 53

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Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? $\begin{array}{lrr}& \underline{\text { A }} &\underline{\text {B}}\\ \text { Price } & \$ 25 & \$ 25\\\text { Expected growth } & 10 \% & 5 \% \\\text { Expected return } & 15\% & 15 \%\end{array}$

Carter's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?

Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? $\begin{array}{lrr}& \underline{\text { A }} &\underline{\text {B}}\\ \text { Price } & \$ 25 & \$ 40 \\\text { Expected growth } & 7 \% & 9 \% \\\text { Expected return } & 10 \% & 12 \%\end{array}$

The preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm. This right helps protect current stockholders against both dilution of control and dilution of value.