FNAN CH. 7

In the dividend growth model, the expected return for investors comes from which two sources?

-dividend yield and growth rate -capital gains yield

Preferred stock has preference over common stock in the:

-payment of dividends -distribution of corporate assets

A PE ratio that is based on estimated future earnings is known as a ________PE ratio.

forward

The value of a firm is derived using the firm's _______ rate and its ______ rate.

growth; discount

If the growth rate (g) is zero, the capital gains yield is ________.

zero

Three special case patterns of dividend growth discussed in the text include:

-constant growth -zero growth -non-constant growth

What is the price of a stock at the end of one year (P1), if the dividend for year 2 (D2), is $5, the price for year 2 (P2) is $20, and the discount rate is 10%?

$22.73

Which of the following are cash flows to investors in stocks?

-Capital Gains -Dividends

What information do we need to determine the value of a stock using the zero growth model?

-Dividend -Discount rate

Which of the following ratios might be used to estimate the value of a stock?

-The Price/Earnings Ratio -The Price/Sales Ratio

This type of growth describes a company that grows quickly first, then slower in the future years.

Non-constant

Using a benchmark PE ratio against current earnings yields a forecast price called a _____ price.

target

The dividend yield is determined by dividing the expected dividend (D1), by:

the current price

The constant-growth model assumes that ___________.

dividend change at a constant rate

The price of a share of common stock is equal to the present value of all _____ future dividends.

expected

What is the total return for a stock that currently sells for $100, is expected to pay a dividend in one year of $2, and has a constant growth rate of 8%?

10% R=(2/100)+0.08

If Joan owns 100 shares of ABC company and the company is electing 4 directors, under cumulative voting, Joan would usually have _____ votes.

400