Question 7

Which of the following statements is true about growth stocks?

		These are stocks of firms that grow their sales at above-average rates and are expected to do so for a length of time
		These are stocks of firms that grow their earnings at above-average rates and are expected to do so for a length of time
		They generally pay dividends during their fast growth phase
		None of the above

2.5 points

Question 8

Which of the following statements is true about the general dividend valuation model?

		It implies that the underlying value of a share of stock is determined by the markets expectations of the future dividends that the firm will generate
		It implies that the value of a firms common stock can be determined only if the expected future dividends are infinite
		It implies that the value of a growth stock can be determined by forecasting the future price of the stock
		The model cannot be used to calculate the value of a common stock unless the dividends exceed the firms expected growth rate

2.5 points

Question 9

The constant-growth dividend model will provide invalid solutions when

		the growth rate of the stock exceeds the required rate of return for the stock
		the growth rate of the stock is less than the required rate of return for the stock
		the growth rate of the stock is equal to the risk-free rate
		None of the above

2.5 points

Question 10

Which of the following are the three simplifying assumptions that cover most stock growth patterns?

		Dividends remain constant over time, dividends grow at a constant rate, and dividends are equal to zero
		Dividends have a zero-growth rate, dividends grow at a varying rate, and dividends are equal to zero
		Dividends remain constant over time, dividends grow at a constant rate, and dividends have a mixed growth pattern
		None of the above