QUESTION 1

1. An issue of common stock is expected to pay a dividend of $4.80 at the end of the year. Its growth rate is equal to 8%. If the required rate of return is 13%, what is its current price?

A) $103.68

B) $36.92

C) $96.00

D) none of the other answers are correct

QUESTION 2

1. Which is a characteristic of the cost of preferred stock?

A) since preferred stock dividends are fixed,they are tax deductible because

B) preferred stock has no maturity,

C) the cost analysis is similar to that of debt preferred stock is valued as a perpetuity

D) none of the other answers are correct

QUESTION 3

1. The longer the super normal growth period for a firm's lasts,

A) the higher the value of its common stock.

B) the lower the value of its common stock.

C) the higher the value of its preferred stock.t

D) he lower the required rate of return used in finding the price of its common stock.

QUESTION 4

1. An issue of common stock is selling for $57.20. The year-end dividend is expected to be $2.32 assuming a constant growth rate of 6%. What is the required rate of return?

A) 10.3%

B)10.1%

C) 4.1%

D) 6.0%

QUESTION 5

1. An increase in the riskiness of a particular security would NOT affect.

A) the risk premium for that security.

B) the premium for expected inflation.

C) the total required return for the security.

D) investors' willingness to buy the security.

QUESTION 6

1. An issue of common stock is expected to pay a dividend of $4.00 at the end of the year. Its growth rate is equal to 8%. If the required rate of return is 15%, what is its current price?

A) $103.68

B) $50.00

C) $26.67

D) none of the other answers are correct

QUESTION 7

1. Preferred stock would be valued the same as a common stock with a zero dividend growth rate.

A) True

B)False

QUESTION 8

1. The valuation of a financial asset is based on the concept of determining the present value of future cash flows.

A) True

B)False

QUESTION 9

1. A 14-year zero-coupon bond was issued with a $1,000 par value and a yield to maturity of 9%. If similar bonds are currently yielding 12%, what is the approximate market value of the bond?

A) $205

B) $299

C) $801

D) $1,000

QUESTION 10

1. The discount rate depends on the market's perceived level of risk associated with an individual security.

A)True

B)False