FIN 300 Ch 3 Hw

One year ago, KJ Industries stock sold for $43 a share. Over the past year, the stock has returned 11.5 percent with half of that return coming from dividend income. What is the current price of this stock?

$45.47 ((.115/2)*43) + 43= $45.47

Chase Bank pays an annual dividend of $1.06 per share on its common stock. One year ago, this stock sold for $48.50 per share. Today, the stock is priced to sell at $31.10 a share. What is the capital gains yield?

-$35.88 percent (31.10 - 48.50)/48.50= $35.88

A stock produced the following returns over the past 5 years: 16 percent, 4.8 percent, −13.4 percent, 24.4 percent, and 11.8 percent. What is the average risk premium for this stock if the average risk-free rate for the period was 4.9 percent?

3.82 percent (16+4.8+-13.4+24.4+11.8/5)= 8.72 - 4.9= 3.82%

If a firm announces an unexpectedly large cash dividend, the efficient market hypothesis (EMH) would predict which of the following price changes at the announcement?

An abnormal price change to occur at the time of the announcement

Which two of the following are the most likely reasons why a stock price might not react at all on the day that new information related to the stock issuer is released? I. insiders knew the information prior to the announcement II. investors need time to digest the information prior to reacting III. the information has no bearing on the value of the firm IV. the information was anticipated

III and IV only the information has no bearing on the value of the firm the information was anticipated

Which of the following statements regarding primary and secondary markets is least accurate?

Prevailing market prices are determined by primary market transactions and are used in pricing new issues

The strong-form efficient market hypothesis (EMH) asserts that stock prices fully reflect which of the following types of information?

Public and private

Which one of the following statements is correct?

The higher the standard deviation of returns, the higher the expected risk premium

Which of the following statements about primary and secondary markets is least accurate?

The proceeds from a sale in the secondary market go to the issuer

The risk premium is computed as the excess return that a security earns over and above the rate for which one of the following?

U.S. Treasury Bill

The semi-strong form of the efficient market hypothesis (EMH) asserts that stock prices:

fully reflect all publicly available information

MBT Corporation recently announced a 15% increase in earnings per share (EPS) over the previous period. The consensus expectation of financial analysts had been an increase in EPS of 10%. After the earnings announcement the value of MBT common stock increased each day for the next five trading days, as analysts and investors gradually reacted to the better than expected news. This gradual change in the value of the stock is an example of:

inefficient markets

Which of the following statements regarding secondary markets is least accurate? Secondary markets are important because they provide:

regulators with information about market participants

Corporate insiders could NOT benefit financially from the inside information they posses in which type of market?

strong form efficient

A primary market transaction involves:

the sale of new securities to investors