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1 | |
The dividend yield reported as Yld.% in The Wall Street Journal quotation is calculated as follows: |
| | A) | (dividends / hi) |
| | B) | (dividends / lo) |
| | C) | (dividends / close) |
| | D) | None of the above |
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2 | |
The Wall Street Journal quotation for a company has the following values: Div: 2.28, PE: 19, Close: 75 3/16. Calculate the dividend pay outratio for the company. |
| | A) | 58% |
| | B) | 12% |
| | C) | 74% |
| | D) | 174% |
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3 | |
Sam's Company expects to pay a dividend of $6 per share at the end of year one, $9 per share at the end of year two, and then be sold for $136 per share. If the required rate on the stock is 20%, what is the current value of the stock? |
| | A) | $100.10 |
| | B) | $105.69 |
| | C) | $110.00 |
| | D) | $120.29 |
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4 | |
The constant dividend growth formula P0 = D1/r-g) assumes: |
| | A) | The dividends are growing rate at a constant rate g forever. |
| | B) | r > g |
| | C) | g is never negative. |
| | D) | Both A and B |
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5 | |
Dividend growth rate for a stable firm can be estimated as: |
| | A) | Plow back rate * the return on equity (ROE) |
| | B) | Plow back rate / the return on equity (ROE) |
| | C) | Plow back rate + the return on equity (ROE) |
| | D) | Plow back rate – the return on equity (ROE) |
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6 | |
Franks Co. is currently paying a dividend of $2.20 per share. The dividends are expected to grow at 25% per year for the next four years and then grow 5% per year thereafter. Calculate the expected dividend in year 6. |
| | A) | $5.37 |
| | B) | $2.95 |
| | C) | $5.92 |
| | D) | $8.39 |
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7 | |
The value of the stock: |
| | A) | Increases as the dividend growth rate increases |
| | B) | Increases as the required rate of return decreases |
| | C) | Increases as the required rate of return increases |
| | D) | Both A and B |
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8 | |
Companies with higher expected growth opportunities usually sell for: |
| | A) | Lower P/E ratio |
| | B) | Higher P/E ratio |
| | C) | A price that is independent of P/E ratio |
| | D) | A price that is dependent upon the payment ratio |
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9 | |
A high proportion of the value a growth stock comes from: |
| | A) | Past dividend payments |
| | B) | Past earnings |
| | C) | PVGO (Present Value of the Growth Opportunities) |
| | D) | Both A and B |
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10 | |
FastGrow is a no growth firm and has 2 million shares outstanding. It is expected to earn a constant $20 million per year on its assets. If all earnings are paid out as dividends and the cost of capital is 10%, calculate the current price per share for the stock. |
| | A) | $200 |
| | B) | $100 |
| | C) | $150 |
| | D) | $50 |
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11 | |
Discounted cash flow formulas work for the valuation of: |
| | A) | Stocks with constant dividend growth |
| | B) | Businesses |
| | C) | Stocks with super normal dividend growth |
| | D) | All of the above |
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12 | |
The present value of free cash flow is $5 million and the present value of the horizon value is $10 million. Calculate the present value of the business. |
| | A) | $5 million |
| | B) | $10 million |
| | C) | $15 million |
| | D) | None of the above |
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13 | |
Shareholders receive cash from the firm in the form of dividends and capital gains. |
| | A) | True |
| | B) | False |
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14 | |
The return that is expected by investors from a common stock is often called its market capitalization rate. |
| | A) | True |
| | B) | False |
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15 | |
The value of a share of common stock is theoretically equal to the disconnected stream of free cash flow per share. |
| | A) | True |
| | B) | False |
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16 | |
A five-year $1,000 par value bond pays a 6.50% annual coupon. Given a YTM of 8.0%, what is the price of the bond today? |
| | A) | $780 |
| | B) | $860 |
| | C) | $940 |
| | D) | $1000 |
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17 | |
Which of the following is the likely price on a bond that has a current price of $1,100 when interest rates rise? |
| | A) | $1,050 |
| | B) | $1,100 |
| | C) | $1,225 |
| | D) | Cannot be determined |
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18 | |
If interest rates rise on two equivalent risk bonds with identical coupons, which will see a larger change in price between a five-year bond and a one-year bond? |
| | A) | One-year bond |
| | B) | Five-year bond |
| | C) | Both will change equally |
| | D) | Cannot be determined |
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19 | |
What is the expected YTM on a bond that pays a $15 coupon annually, has a $1,000 par value, and matures in six years if the current price of the bond is $978? |
| | A) | 1.89% |
| | B) | 3.67% |
| | C) | 9.78% |
| | D) | 15.00% |
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20 | |
What will be the price of a bond in which the YTM is higher than the coupon rate? |
| | A) | Below par |
| | B) | Above par |
| | C) | At par |
| | D) | Cannot be determined |
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21 | |
Given a stock price of $39.77 and an expected return to shareholders of 12.4%, what is the likely growth rate if the annual dividend next year is expected to be $3.50? |
| | A) | 0.0% |
| | B) | 3.6% |
| | C) | 8.4% |
| | D) | 12.4% |
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22 | |
A stock is trading for $35.00 and the firm has no growth potential. An analysis reveals that the price from a new growth oriented investment would be $55.00. What is the PVGO of this new project? |
| | A) | $0.00 |
| | B) | $20.00 |
| | C) | $35.00 |
| | D) | $55.00 |
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23 | |
A firm decides to pay 40% of its $5.00 earnings per share as a dividend. If the remaining is invested at 18% and the firm's expected return is 12%, what is the PVGO? |
| | A) | $27.78 |
| | B) | $41.67 |
| | C) | $68.00 |
| | D) | $125.00 |
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