$1.42
$1.25
$1.75
$2.00
Question 2. 2. (TCO D) Find the next dividend that the required return is 9.78 percent, the dividend growth rate is 7.74 percent, and the stock price is $93.50 per share. (Points : 5)
$1.91
$0.91
$2.91
$1.71
Question 3. 3. (TCO D) A company has taxable income of $1,760 with a tax rate of 38 percent. Owners equity is: $400 in stock, $200 in capital surplus, and $200 in retained earnings. What is the return on equity (ROE)? (Points : 5)
130%
125%
123%
136%
Question 4. 4. (TCO B) Behavioralists point out that even if market prices are ____________ there may be _______________. (Points : 5)
distorted; limited arbitrage opportunities
distorted; fundamental efficiency
allocationally efficient; limitless arbitrage opportunities
distorted; allocational efficiency
Question 5. 5. (TCO B) You can earn abnormal returns on your investments via macro forecasting ______. (Points : 5)
if you can forecast the economy at all
if you can forecast the economy as well as the average forecaster
if you can forecast the economy better than the average forecaster
only if you can forecast the economy with perfect accuracy
Question 6. 6. (TCO A) Active trading in markets and competition among securities analysts helps ensure that __________.
I. security prices approach informational efficiency
II. riskier securities are priced to offer higher potential returns
III. investors are unlikely to be able to consistently find under or overvalued securities (Points : 5)
I only
I and II only
II and III only
I, II and III
Question 7. 7. (TCO A) Explicit costs of an IPO tend to be around ______ of the funds raised. (Points : 5)
1%
7%
15%
25%
Question 8. 8. (TCO A) You earn six percent on your corporate bond portfolio this year, and you are in a 25 percent federal tax bracket and an eight percent state tax bracket. Your after tax return is _____. (Assume that federal taxes are not deductible against state taxes and vice versa). (Points : 5)
4.50%
4.14%
4.02%
3.12%
9. (TCO I) CAPM is one of the more popular models for determining the risk premium on a stock. If the Expected Return on the Market Portfolio is 9.10%, the Risk-Free Rate is 2.0%, and the Beta for Stock i is 0.9. Find the Expected Return on the Stock using the CAPM model. Show your work.
10. (TCO D) XYZ company paid a dividend of $4.66 in the past 12 months. The annual dividend growth rate is 6.93 percent, and the required rate of return on the stock is 10.25 percent. Calculate the current price of the stock. Do not use a financial calculator or an online calculator. You must show your work.
11. (TCO D) Company XYZ is expected to grow at 10% annually forever, and its dividend in the next 12 months is expected to be $2.50, and its required rate of return is 17.5%.
a. What is its intrinsic value?.
b. If the current price is equal to its intrinsic value, what is next year's expected price?.
c. Assume you buy the stock now and sell it after receiving the $2.50 dividend one year from now. What would be your anticipated capital gain in percentage terms? .
What is the dividend yield and the holding period return?.
