A Which descriptor relates to the income approach for valuing corporations?

• a.)
• Reflects what shareholders are actually willing to pay
• b.)
• Considers the total economic value of a company's resources
• c.)
• Relies on number of shares outstanding
• d.)
• Calculates the weighted average cost of capital

B Determine the value of a stock with the following variables using the constant growth model:

• Current annual dividend: $1.50 per share
• Required return rate: 6.5%
• Constant growth rate: 4.5%
• a.)
• $35.50
• b.)
• $75
• c.)
• $79.88
• d.)
• $78.38

C Which of the following is true of portfolio diversification?

• a.)
• A diversified portfolio will increase variance, without compromising returns.
• b.)
• A diversified portfolio is more sensitive to an investor's time frame and risk tolerance.
• c.)
• A diversified portfolio will always prevent an investor from losing money.
• d.)
• A diversified portfolio is less affected by systemic risk.

D What is the effect of a merger or acquisition announcement on the stock price of a company involved in the restructuring?

• a.)
• It could increase or decrease, depending on how analysts interpret the long term outlook of the company.
• b.)
• It will likely increase because analysts add together the stock prices of the companies involved.
• c.)
• It will likely decrease because M&A announcements are a signal of market instability.
• d.)
• M&A announcements typically have little effect on the stock price of the companies involved.