An analyst produces the following series of annual dividend forecasts. The Expected dividends in year t+1, t+2 and t+3 are $10, $20 and $10, respectively. The analyst believes that dividends will be zero after year t+3. The companys cost of equity is 10 per cent. Under these assumptions, what will be equity value at the end of year t?

a.

$31.16

b.

$33.13

c.

$36.36

d.

$40

Under the efficient markets hypothesis, a security price which reflects all public information fully and immediately upon its release would be an example of:

a.

Strong-form efficiency.

b.

Semi-strong-form efficiency.

c.

Weak-form efficiency.

d.

Semi-weak from efficiency.

Which of the following factors would influence how a security analyst invests their time?

a.

The degree of unavoidable risk in the market.

b.

The degree of avoidable risk in the market.

c.

How quickly and efficiently information becomes incorporated in security prices.

d.

All of these choices.

A company has a beta of 1.2. The risk-free rate is 2 per cent and the market risk premium is 8 per cent. The companys cost of equity will be:

a.

2.8 per cent

b.

9.2 per cent

c.

11.6 per cent

d.

15.2 per cent

Clear my choice

The random walk model for abnormal earnings implies that a good indicator of future expected abnormal earnings is:

a.

Current abnormal earnings.

b.

Current normal earnings.

c.

Current normal earnings adjusted for the cost of equity.

d.

Future abnormal earnings adjusted for the cost of equity.