Chapter 8
The stock valuation model that determines the current stock price as the next dividend divided by the (discount rate less the dividend growth rate) is called the: A. Zero growth model. B. Dividend growth model. C. Capital Asset Pricing Model. D. Earnings capitalization model. E. Perpetual growth model.
B. Dividend growth model.
Which of the following is (are) true? I. The dividend growth model only holds if, at some point in time, the dividend growth rate exceeds the stock's required return. II. A decrease in the dividend growth rate will increase a stock's market value, all else the same. III. An increase in the required return on a stock will decrease its market value, all else the same. A. I only B. III only C. II and III only D. I and III only E. I, II, and III
B. III only
Stocks are different from bonds because ___________________. A. Stocks, unlike bonds, are major sources of funds. B. Stocks, unlike bonds, represent residual ownership. C. Stocks, unlike bonds, give owners legal claims to payments. D. Bonds, unlike stocks, represent voting ownership. E. Bonds pay dividends.
B. Stocks, unlike bonds, represent residual ownership.
You just voted against a merger proposal made by another corporation. You must own: A. Preferred stock. B. Debentures. C. Common stock. D. Cumulative dividend stock. E. Class B stock.
C. Common stock.
The rate at which the stock price is expected to appreciate (or depreciate) is the: A. Current yield. B. Total yield. C. Dividend yield. D. Capital gains yield. E. Earnings yield.
D. Capital gains yield.
Which of the following is true about the differences between debt and common stock? A. Debt is ownership in a firm but equity is not. B. Creditors have voting power while stockholders do not. C. Periodic payments made to either class of security are tax deductible for the issuer. D. Interest payments are promised while dividend payments are not. E. Bondholders can also own equity, but not vice versa.
D. Interest payments are promised while dividend payments are not.
