What is the maximum price Erica should pay for Rangoon Corp. common stock if her required return is 5% and she expects to sell the stock in one year for $50 per share, immediately after she receives a $.50 per share dividend? (Round to the nearest tenth.) A) $50.00 B) $48.10 C) $48.00 D) $45.00 […]
Date: September 19th, 2020
If we believe that a company is following a constant dividend policy, we can then use the current dividend to predict all future dividends because they are the same. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
If the last dividend on Markowitz Trucking stock was $2 per share and if dividends are expected to grow 10% annually, what is the share price if the required return is 12%? A) $100 B) $155 C) $110 D) $125 E) $130 ANSWER C
Date: September 19th, 2020
In applying the constant dividend model with infinite horizon to price a stock for purchase, we assume the company will pay dividends forever and that we will hold onto our stock forever. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
If we know the dividend stream, the future price of the stock, the future selling date of the stock, and the required return, we can price stocks just as we priced ________. A) annuities B) perpetuities C) bonds D) preferred stocks ANSWER Answer: C Explanation: C) Stocks can be priced just like bonds […]
Date: September 19th, 2020
Leonardo’s broker called him recently with an offer to buy Downliner Waterproof Furnishings Corp common stock for $40 per share. His broker promised to repurchase the shares in one year for $45 per share. If Leonardo accepts this deal, what is his required return? The stock is not expected to pay a dividend next year. […]
Date: September 19th, 2020
What if the company goes out of business in fifteen years and thus pays an annual dividend of $2.10 for only those fifteen years? What is the present value of a share for this company if we want a 10% return on the stock? A) $15.97 B) $16.97 C) $17.97 D) $18.97 ANSWER […]
Date: September 19th, 2020
Western Auto Inc. pays a $1.77 preferred dividend every quarter and will maintain this policy forever. What price should you pay for one share of preferred stock if you want an annual return of 9.25% on your investment? A) $66.54 B) $70.54 C) $74.54 D) $76.54 ANSWER Answer: D Explanation: D) We use […]
Date: September 19th, 2020
Simpson Industries Inc. pays a $1.37 dividend every quarter and will maintain this policy forever. What price should you pay for one share of common stock if you want an annual return of 12.5% on your investment? A) $43.84 B) $43.94 C) $44.84 D) $44.94 ANSWER Answer: A Explanation: A) We use the […]
Date: September 19th, 2020
Refer to the performance data for three mutual funds and the market portfolio in the following table. Which is the best investment based on its excess return per unit of systematic risk? AGF AIM Alta Market Risk-free 5 year return 0.1348 0.0784 0.0574 0.1361 0.02 Beta 1.35 1.02 0.78 1 0 Treynor Index ? 0.0573 […]
Date: September 19th, 2020
