Fin 3030 - Chapter 7

P1 = (Blank______ + P2)/(1 + R)

D2 (bottom little)

P0 = (D1 + P1)/(1 + Blank______)

R

Which of the following are reasons that make valuing a share of stock more difficult than valuing a bond?

Stock has no set maturity. Dividends are unknown and uncertain. The required rate of return is unobservable

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

constant growth. nonconstant growth. zero growth.

The constant growth model assumes that Blank______.

dividends change at a constant rate

P0 = (D1 + P1)/(1 + ______)

R

True or false: Common stock has a set maturity.

False

What is the formula for the present value of a growing perpetuity, where C1 is the net cash flow, R is the required return, and g is the growth rate?

P = C1/(R − g)

Match the following terms relating to stock valuation: P1 D1 R P0 D0

-Price in one year -Next expected dividend -Discount Rate -Price today -Dividend just paid

Which one of the following is true about dividend growth patterns?

Dividends may grow at a constant rate.

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

expected