Chapter 8 HW

What is the model called that determines the market value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate? A) Maximal-growth model B) Constant-growth model C) Capital pricing model D) Realized-earnings model E Realized-growth model

B) Constant-growth model

You own one share of a cumulative preferred stock that pays quarterly dividends. The firm has recently suffered some financial setbacks and has failed to pay the last two dividends. However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter. As a preferred shareholder, you should expect to receive the equivalent of ____ quarter(s) of dividends when the next dividend is paid. A) 0 B) 1 C) 2 D) 3 E) either 1, 2, or 3

D) 3

Which one of following is the rate at which a stock's price is expected to appreciate? A) Current yield B) Total return C) Dividend yield D) Capital gains yield E) Coupon rate

D) Capital gains yield

A decrease in which of the following will increase the current value of a stock according to the dividend growth model? A) Dividend amount B) Number of future dividends, provided the total number of dividends is less than infinite C) Dividend growth rate D) Discount rate E) Both the discount rate and the dividend growth rate

D) Discount rate

An agent who maintains an inventory from which he or she buys and sells securities is called a: A) broker. B) trader. C) capitalist. D) principal. E) dealer.

E) dealer.

The dividend growth model: A) assumes dividends increase at a decreasing rate. B) only values stocks at Time 0. C) cannot be used to value constant dividend stocks. D) can be used to value both dividend-paying and non-dividend-paying stocks. E) requires the growth rate to be less than the required return.

E) requires the growth rate to be less than the required return.