1) The value of a stock

A. is equal to the present value of all expected future dividends

B. is equal to the present value of the stock price at the end of the investors horizon

c. is equal to the present value of the expected dividends over the investors horizon

d. is equal to the present value of all expected future earnings

e. is equal to the book value of equity divided by the number of shares outstanding.

2) A stock is expected to pay dividends of $2.00 and $2.20 in the next two years and sell for a price of $45 at the end of two years. What will an investor who expects a 10 percent rate of return be willing to pay for this stock?

a. $20

b. $37.19

c. $40.83

d. $44.73

e. $47.20

3. A stock is expected to pay dividends of $.85 and $.90 in the next two years and sell for a price of $25 at the end of two years. What will an investor who expects 12 percent rate of return be willing to pay for this stock?

a. $13.97

b. $19.93

c. $20.65

d. $21.41

e.23.88

4. Filmore west pays a $3 dividend right now and its stock sells for $43. The best estimate of Fillmore's required return is 13 percent. What is Fillmore's constant growth rate?

A. 3.5%

b. 5.6%

c. 6.0%

d. 6.5%

e.7.0%

5) A company pays out all its earnings as dividends. It will pay its next $2.50 per share dividend in a year. The discount rate is 8 percent. What is the price-earnings ratio?

a. 8.0

b. 10.4

c. 12.5

d. 20.0

e. 31.25