You just took out a $12,000 loan for your small business. The loan has a four year term and repayment is in the form of four equal end-of-year payments. The interest rate on the loan is 11.5%. What is your total interest expense in the first year of the loan? A) $1,380.00 B) $1,089.13 C) […]
Date: September 19th, 2020
The last dividend paid on Minsky Corp. stock was $3 per share. If Minsky investors require a 10% return, what should the share price be if the dividend payments are not expected to change? A) $3 B) $300 C) $33 D) $30 E) $40 ANSWER D
Date: September 19th, 2020
The table below shows selected financial data for the Turtle Income fund, the Hare Growth fund, the market portfolio and the risk free asset. If you wanted to build a portfolio out of T-Bills and the market portfolio to mimic the performance of the Turtle Income Fund, what proportion would you invest in the market […]
Date: September 19th, 2020
Caldwell Corp. has outstanding borrowings. One of these borrowings is nonconvertible preferred stock (cumulative) with a par value of $75 and an annual dividend rate of 8.25%. This preferred stock is currently selling for $56.46 per share. What is the yield or return (r) on this preferred stock? A) 10.395% B) 10.432% C) 10.959% D) […]
Date: September 19th, 2020
Which of the following statements is FALSE? A) Preferred stock usually has a stated or par value but unlike bonds, this par value is not repaid at maturity because preferred stocks do not have a maturity date. B) The only time the par value of preferred stock would be paid to the shareholder is if […]
Date: September 19th, 2020
The dividend models appeal to a fundamental concept of asset pricing—that the value of an asset is determined by the future cash flow to which the owner is entitled while holding the asset, and the required rate of return for the cash flow. Indicate whether the statement is true or false. ANSWER Answer: […]
Date: September 19th, 2020
Puckett Corp. has just issued nonconvertible preferred stock (cumulative) with a par value of $50 and an annual dividend rate of 7.25%. The preferred stock is currently selling for $38.75 per share. What is the yield or return (r) on this preferred stock? A) 9.341% B) 9.345% C) 9.351% D) 9.355% ANSWER Answer: […]
Date: September 19th, 2020
An application of the capital asset pricing model, called the security market line, is more inclusive than the dividend growth model for pricing stocks and provides expected returns for companies based on their risk, the premium for taking on risk, and the reward for waiting and not on their historical pattern of dividends. Indicate whether […]
Date: September 19th, 2020
The dividend growth model has a limitation due to the necessity to have a non-growing dividend pattern in order for it to work. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: The dividend growth model has a limitation due to the necessity to have a GROWING dividend pattern in […]
Date: September 19th, 2020
Central Inc. has an 11.5% required rate of return. It does not expect to initiate dividends for 20 years, at which time it will pay $3.75 per share in dividends. At that time, Central expects its dividends to grow at 6% forever. What is an estimate of Central’s price in 20 years (P20) if its […]
Date: September 19th, 2020
