16. An analyst wants to value a firm with the following characteristics: Last year the firm paid a dividend of $4.00 per share. Expectations are that the firm can increase earnings and dividends at the rate of 25% for the next five years, but after that competitive forces will force the growth rate down to 6% for the foreseeable future. What is the best estimate of the stock's value if the required rate of return is 12%? a. $145.67 b. $165.45 c. $150.52 17. Estimate an appropriate P/E ratio for a firm with current earnings of $2.50 per share, a current dividend of $1.00 per share, an expected growth rate of 8%, and a required rate of return of 14%. a. 15.67 b. 20.52 c. 6.67 18. Advanced Electronic Systems is expected to generate a return on equity of 18% and to retain 20% of earnings next year. The expected growth rate is closest to a. b. 14.40% 3.60% 18.00% 19. An investor buys 100 shares of a $60 stock on margin when the initial margin is 40%. Assume that the interest rate on the margin loan is 10%, the stock pays $5.00 per share in annual dividends, and that the seller maintains the margin position for one year. The investor then sells the stock for $70 at the end of the one-year holding period. The rate of return on this transaction is closest to: a. b. c. 47.5% 38.0% 21.0% 20. Which of the following statement concerning diversification is incorrect? a. Diversification can reduce portfolio risk only when security return correlations are less than 1.0 b. A well-diversified portfolio can eliminate market risk. c. Holding multiple securities (Even within the same industry) will reduce risk