1.Rancid Fruit Co. just paid a dividend of $1.00 and expects to increase it at a rate of 5% annually. All else equal, under which of the following conditions would its stock price fall in one year?

If the dividend in one year exceeds $1.05.

If the required return falls.

If the growth rate increases.

If its PE ratio increases.

If its dividend in one year is less than $1.05.

2. A share of common stock has just paid a dividend of $2. If the expected long-run growth rate for this stock is 15%, and if investors require a 19% rate of return, what is the price of the stock?

$64

$44.92

$57.50

$71.86

$62.25

3. If the price of Iguana Handbags Inc. stock is $43, its required return is 20% and the last dividend was $3, what is its dividend growth rate?

17.4%

10%

12.2%

13%

11.7%

4. The price/earnings ratio:

Is computed by dividing the book value of a stock by the firms EPS.

Is found by dividing the market price of stock by the firms total earnings.

Is calculated by adding the market price of a stock to the firms EPS.

Is found by dividing the market price of a stock by the firms EPS.

Is calculated by multiplying the market price of a stock by its earnings per share.

5. If the expected rate of return on a stock exceeds the required rate:

The stock is experiencing supernormal growth.

The company is probably not trying to maximize price per share.

Dividends are not being declared.

The stock is a good buy.

The stock should be sold.