Question 4

Which one of the following will Which one of the following will increase the price-earnings ratio, all else constant?all else constant? (I.) a decrease in the number of shares outstanding (II.) an increase in net income (III.) a decrease in the earnings yield (IV.) decrease in the market price per share

	I only
	III only
	II and IV only
	I and III only
	I, III, and IV only

4 points

Question 5

You own a firm which has relatively steady growth. As a result, you have adopted a policy of increasing the annual dividend by 3.5 percent each year and forever. Next year's dividend will be $1.40. The discount rate is 10 percent. What is the present value of your stock?

	$14.49
	$15.00
	$20.81
	$21.54
	$22.29

4 points

Question 6

Margo Enterprises stock is valued at $17.65 a share. The firm pays annual dividends and increases those dividends by 4 percent each year and forever. Next year's dividend will be $1.50 per share. What is the required return on this stock?

	12.02 percent
	12.50 percent
	12.67 percent
	12.82 percent
	13.00 percent

4 points

Question 7

Penny's Shoes pays annual dividends and increases those dividends by 3.5 percent each year. The stock is currently valued at $24.40 a share and has a required return of 13.5 percent. You own 300 shares of this stock. What is the total amount of dividend income you should expect to receive next year?

	$707
	$732
	$741
	$758
	$770

4 points

Question 8

J&L Pools has net income of $248,000. The firm has 500,000 shares of common stock outstanding. The dividend that is being paid for this year is $.1984 per share. What is the retention ratio?

	.50
	.55
	.60
	.65
	.70

4 points

Question 9

Donaldson and Heirs has a net income of $238,000, total assets of $1,784,000, and total liabilities of $437,000. The company paid $66,640 in dividends. What is the firm's sustainable rate of growth?

	3.74 percent
	4.95 percent
	9.61 percent
	11.93 percent
	12.72 percent

4 points

Question 10

The common stock of Red Rover Feed Mills has a required return of 12 percent. The latest press release stated that last year's dividend was $1.20 per share and that future dividends will increase by 10 percent for the following 3 years. After that, the dividend growth rate will be 2.5 percent indefinitely. What is one share of this stock worth to you today?

	$13.42
	$14.14
	$15.26
	$15.74
	$16.03

4 points

Question 11

Wilson's Leather Goods has net income of $41,600 and total equity of $381,000. The firm was 60,000 shares of stock outstanding at a price per share of $14.20. What is the firm's P/E ratio?

	16.21
	17.37
	19.09
	20.48
	21.94

4 points

Question 12

Ameth Growers has historically had a P/E ratio of 21.4. This ratio is considered a good estimate of the future ratio. The firm currently has EPS of $2.34. These earnings are expected to increase by 3.4 percent next year. What is the expected price of this stock one year from now?

	$45.54
	$48.43
	$50.25
	$51.78
	$53.79

4 points

Question 13

Wayne's Water Works has an historical P/CF ratio of 20.3. The current CFPS is $1.65 and the projected CFPS growth rate is 8.6 percent. The current EPS is $.58. What is the expected price of this stock one year from now?

	$34.79
	$36.38
	$37.91
	$39.27
	$40.42

4 points

Question 14

Currently, Major Industries of Ohio has sales of $3.4 million, net profit of $268 thousand, and 400 thousand shares of stock outstanding. The sales and net profit are each expected to grow by 7.5 percent annually. The historical P/S ratio is 8.5. What is the expected price of this stock one year from now?

	$72.25
	$73.14
	$75.55
	$77.01
	$77.67

4 points

Question 15

What is the beta of a portfolio which consists of the following?

	.99
	1.03
	1.07
	1.14
	1.17

4 points

Question 16

The following portfolio has an expected return of _____ percent and a beta of _____.

	10.87; 1.08
	10.87; 1.11
	11.03; 1.07
	11.03; 1.10
	11.11; 1.09

4 points

Question 17

A risky asset has a beta of 1.64 and an expected return of 18.8 percent. What is the risk-free rate if the risk-to-reward ratio is 7 percent?

	6.94 percent
	7.01 percent
	7.26 percent
	7.32 percent
	7.36 percent

4 points

Question 18

Rebilt Engines, Inc., stock has a beta of 1.4 and an expected return of 13.7 percent. The risk-free rate is 5.1 percent. What is the market rate of return?

	10.77 percent
	10.84 percent
	11.05 percent
	11.13 percent
	11.24 percent

4 points

Question 19

Taylor, Inc., stock has a beta of 1.2 and an expected return of 14.3 percent. The risk-free rate is 4.1 percent and the market risk premium is 6.8 percent. This stock is _____ because the CAPM return for the stock is _____ percent.

	undervalued; 11.87
	undervalued; 12.09
	undervalued; 12.26
	overvalued; 11.87
	overvalued; 12.26

4 points

Question 20

The market has a standard deviation of 13.6 percent while a risky has a standard deviation of 22.4 percent. The covariance of the stock with the market is .0120. What is the beta of the stock?

	.48
	.65
	.79
	.91
	1.06

4 points

Question 21

The Swift Water Co. is expected to increase its dividends at 18 percent for the next three years and then taper off to a constant 4 percent rate of increase. The value of Swift Water's stock should be computed using the two-stage dividend growth model.

	True
	False

2 points

Question 22

In relation to the price-cash flow ratio, cash flow is commonly defined as net income plus depreciation.

	True
	False

2 points

Question 23

Blackwater Tours pays an annual dividend which increases by 4 percent each year. The next dividend is expected to be $1.36 a share. Blackwater recently announced that they will be ceasing all dividends after 3 more years as they are planning a major expansion project and will need to conserve cash. What is the current value of this stock if the discount rate is 15 percent?

	$3.22
	$3.37
	$3.41
	$3.55
	$3.59

4 points

Question 24

Over the past 4 years, your firm has paid annual dividends of $1.90, $2.10, $2.20, and $2.35. What is the arithmetic average dividend growth rate?

	7.30 percent
	7.34 percent
	7.37 percent
	8.01 percent
	8.05 percent

4 points

Question 25

The last dividend paid by Lynwood Properties was an annual dividend of $1.20 a share. Dividends for the following 4 years will be increased at an annual rate of 12 percent. After that, dividends are expected to increase by 2 percent each year. The discount rate is 14 percent. What is the current value of this stock?

	$10.40
	$12.78
	$13.33
	$14.10
	$15.55

4 points

Question 26

A portfolio has a beta of 1.05 and an actual return of 14.6 percent. The risk-free rate is 4.2 percent and the market risk premium is 8.8 percent. What is the value of Jensen's alpha?

	1.16 percent
	2.08 percent
	2.31 percent
	4.69 percent
	5.57 percent

3 points

Question 27

A portfolio has a variance of .021904, a beta of .87, and an expected return of 10.1 percent. What is the Treynor ratio if the expected risk-free rate is 3.9 percent?

	.07
	.09
	.11
	.39
	.42

3 points

Question 28

A stock has a return of 12.7 percent, a standard deviation of 15.2 percent, and a beta of 1.4. The risk-free rate is 5 percent and the market risk premium is 8.3 percent. What is the Jensen-Treynor alpha of this stock?

	-2.80 percent
	-1.89 percent
	-1.42 percent
	-0.29 percent
	0.06 percent

3 points

Question 29

A portfolio consists of the following two funds. What is the Sharpe ratio of the portfolio?

	.39
	.42
	.45
	.49
	.53

3 points

Question 30

Stocks with high price-earnings ratios are commonly referred to as _____ stocks.

	income
	value
	growth
	geometric
	low beta

10 points

Question 31

The two-stage dividend growth model assumes the second-stage growth rate is:

	less than the discount rate.
	less than or equal to the discount rate.
	less than, greater than, or equal to the discount rate.
	less than the first-stage growth rate.
	greater than the first-stage growth rate.