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1) Stocks A and B have the following data

A B

Beta 1.10 0.90

Constant growth rate 7.00% 7.00%

The market risk premium is 6% and the risk-free rate is 6.4%. Assuming the stock market is efficient and the stocks are equilibrium, which of the following statements is correct?

>Stock A must have a higher dividend yield than Stock B.

>Stock A must have a higher stock price than Stock B.

>Stock B's dividend yield equals its expected dividend growth rate.

>Stock B mush have a higher required return.

>Stock B could have the higher expected return.

2) Which of the following statement is correct?

>To implement the corporate valuation model, we discount net operating profit after taxes (NOPAT) at the weighted average cost of capital.

>To implement the corporate valuation model, we discount projected free cash flows at the weighted average cost of capital

>To implement the corporate valuation model, we discount projected free cash flows at the cost of equity capital

>To implement the corporate valuation model, we discount projected net income at the weighted average cost of capital.

>The corporate valuation model requires the assumption of a constant groth rate in all years.

3) If in the opinion of a given investor, a stock's expected return exceeds its required return, this suggests that the investors thinks:

>The stock should be sold.

>Management is probably not trying to maximize the price per share

>The stock ix experiencing supernormal growth

>Dividends are not likely to be declared

>The stock is a good buy.

4) If in the opinion of a given investor, a stock's expected return exceeds its required return, this suggests that the investors thinks:

>The stock should be sold.

>Management is probably not trying to maximize the price per share

>The stock ix experiencing supernormal growth

>Dividends are not likely to be declared

>The stock is a good buy.

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