The required rate of return, or market capitalization rate, for a share of common stock that pays regular dividends is estimated by the discounted cash flow model as:

Dividend Yield + Expected rate of growth in dividends

Dividend Yield - expected rate of growth in dividends

Dividend Yield / Expected rate of growth in dividends

Dividend Yield * Expected rate of growth in dividends

The most widely used measure for valuing all of the income and capital gains/losses from holding a corporate bond is:

Yield to maturity

Coupon rate

Current yield

Primary yield

Price yield

A share of CCC Company stock is selling for $100 today. It is expected that the company will pay a $5 dividend one year from now and the share will then be trading in the market at $120. Calculate the expected return for a shareholder who buys CCC stock and then sells it right after receiving the dividend.

25%

10%

20%

5%

The discounted cash flow model shows that the value of a share of common stock today depends on:

Expected future dividends and the discount rate

number of shares outstanding and the number of shareholders

Wall Street analysts

Present value of future earnings per share, Dividends one period from now and the Treasury yield

Yesterday's closing stock price and the discount rate

Jarrod Co. has historically regularly paid dividends and is expected to pay a dividend of $3 one year from now. Dividends thereafter are expected to grow at a constant rate of 2.5%. If the current price of the stock is $24, what is the required rate of return, or the market capitalization rate for this stock?

15%

10%

2.5%

12.5%

22.5%

Chantilly Co. regularly pays out one-third of its earnings as dividends. Its return on equity is 15%. What is the stable dividend growth rate (or sustainable dividend growth rate) for the firm?

10.0%

15%

33.3%

6.7%

7.5%

Omega Company has just paid a dividend of $1 per share. Dividends are expected to grow 20% per year for the next three years and at 5% thereafter. If the required rate of return on the stock is 15%, what is the current value of the stock?

$15.20

$11.93

$17.81

$18.14

$21.41

Sea Co. has just paid a dividend of $2 per share out of earnings of $4 per share. If the book value per share is $25, what is the expected growth rate in dividends?

8%

16%

12%

4%

5%

PKM, Inc. has just paid a dividend of $3 per share out of earnings of $5 per share. The expected growth rate in dividends is 5%. If the book value per share is $40 and the market value per share is $52.50, what is the required rate of return on the stock?

11%

5%

6%

12%

15.2%

If a firm's dividend is expected to grow at a reasonably steady rate into the foreseeable future, the discounted cash flow model implies that the current market price of the firm's stock can be calculated as the present value of a growing perpetuity.

True

False

Universal Air is a no growth firm. It is expected to provide a constant earnings per share of $10. If all earnings are paid out as dividends and the cost of capital is 10%, what is the current price of the stock?

$100

$50

$150

$200

If a bond sells at a discount, its intrinsic value is less as a semiannual pay bond than as an annual pay bond.

True

False

Suppose the yield to maturity drops an identical amount on two equivalent risk bonds with identical coupons. If one has two years to maturity and the other six years to maturity, which bond will have a larger change in price?

the six year maturity bond's price will change more

the two year maturity bond's price will change more

both bond's prices will change by the same amount

the relative change in prices is unpredictable

What will be the price of a bond for which the yield to maturity is less than the coupon rate?

Above par

Below par

The price relative to par cannot be determined without more information

At par

As the required rate of return decreases, the value of stock will increase.

True

False

Preferred stock is similar to common stock in that most preferred issues have:

no maturity

voting rights

a guaranteed return

a residual share of the company's earnings

The P/E ratio indicates how much the market is willing to pay for a dollar of expected earnings from the firm.

True

False

The intrinsic value of a financial asset is also called its:

fundamental value

going-concern value

liquidation value

book value

market value

The residual cash flow remaining after meeting interest and principal payments and providing for capital expenditures to maintain existing assets and acquire new assets for future growth is called:

free cash flow

dividends

contingent value

top down value

intrinsic value

A price-yield curve is a plot of a bond's market price compared to:

required rate of return

current yield

default yield

minimum yield

Treasury rates