FIN 301 o

B) Constant-growth model

1) 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

E) Common

10) Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings? A) Dual class B) Cumulative C) Non-cumulative D) Preferred E) Common

E) dealer

11) 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

A) broker

12) An agent who arranges a transaction between a buyer and a seller of equity securities is called a: A) broker B) floor trader C) capitalist. D) principal. E) dealer

C) Executes orders on behalf of customers

13) A floor broker on the NYSE does which one of the following? A) Supervises the commission brokers of a specific financial firm B) Trades for his or her own personal inventory C) Executes orders on behalf of customers D) Maintains an inventory and assumes the role of a market maker E) Is charged with maintaining a liquid, orderly market

C) over-the-counter

14) A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market? A) Auction B) Private C) Over-the-counter D) Regional E) Insider

C) $2.08

15) The Garden Shoppe has adopted a policy of increasing its annual dividend at a constant rate of 1.33 percent annually. The company just paid its annual dividend of S1.84. What will the dividend be nine years from now? A ) $ 2.10 B) S2.05 C) $2.08 D) $2.02 E) $2.15

B) S10.82

16) Three Corners Markets paid an annual dividend of S1.42 a share last month. Today, the company announced that future dividends will be increasing by 1.3 percent annually. If you require a returm of 14.6 percent, how much are you willing to pay to purchase one share of this stock today? A) S11.23 B) S10.82 C) S10.68 D) S9.68 E) S11.57

E) 10.95 percent

17) Home Products common stock sells for S36.84 a share and has a market rate of return of 15.8 percent. The company just paid an annual dividend of S1.61 per share. What is the dividend growth rate? A) 11.43 percent B) 11.06 percent C) 10.87 percent D) 11.18 percent E) 10.95 percent

A) S9.49

18) Dee's made two announcements concerning its common stock today. First, the company announced that the next annual dividend wil be S1.58 a share. Secondly, all dividends after that will decrease by 1.15 percent annually. What is the value of this stock at a discount rate of 15.5 percent? A) S9.49 B) S10.10 C) S9.82 D) S10.51 E) S11.01

D) S28.18

19) Yummy Bakery just paid an annual dividend of S3.40 a share and is expected to increase that amount by 2.2 percent per year. If you are planning to buy 1,000 shares of this stock next vear, how much should you expect to pay per share if the market rate of retun for this type of security is 14.8 percent at the time of your purchase? А ) $ 29.89 B) S27.58 C) S29.83 D) S28.18 E) $27.20

D) Capital gains yield

2) 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

B) S32.83

20) The UpTowner just paid an annual dividend of S4.12. The company has a policy of increasing the dividenod by 2.5 percent annually. You would like to purchase shares of stock in this firm but realize that you will not have the funds to do so for another four years. If you require a rate of return of 16.7 percent, how much will you be willing to pay per share when you can afford to make this investment? A) S32.03 B) S32.83 C) S33.12 D) $33.65 E) S32.47

A) S5.95

21) Hi-Tek is a young start-up company that is currently retaining all of its earnings. The company plans to pay a $2 per share dividend in Year 7 and increase that dividend by 2.2 percent per year thereafter. What is the current share price if the required retun is 16 percent? A) S5.95 B) S6.62 C) S8.59 D) $14.29 E) S11.78

A ) $ 13.89

22) The common stock of Water Town Mills pays a constant annual dividend of S2.25 a share. What is one share of this stock worth at a discount rate of 16.2 percent? A ) $ 13.89 B) $14.01 C) S14.56 D) S13.79 E) $13.28

D) S65.85

23) J&J Foods wants to issue 5.4 percent preferred stock with a stated liquidating value of S100 a share. The company has determined that stocks with similar characteristics provide a return of 8.2 percent. What should the offer price be? A) S67.26 B) S61.38 C) S64.20 D) S65.85 E) S64.60

C) S5.34

24) A preferred stock sells for S63.60 a share and provides a return of 8.40 percent. What is the amount of the dividend per share? A) S5.45 B) S3.25 C) S5.34 D) S5.43 E) S5.28

B) 6.41 percent

25) The common stock of Dayton Repair sells for $47.92 a share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate of return on this stock? A) 4.84 percent B) 6.41 percent C) 9.92 percent D) 6.14 percent E) 7.28 percent

E) 13.47 percent

26) Southern Markets recently paid an annual dividend of $2.62 on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for S28.12 a share. What is the market rate of return? A ) 13.88 percent B) 14.07 percent C) 14.21 percent D) 14.37 percent E) 13.47 percent

A) 10.86 percent

27) The current dividend yield on CJ's common stock is 1.89 percent. The company just paid an annual dividend of S1.56 and announced plans to pay SI · 70 next year . The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock? A) 10.86 percent B) 15.82 percent C) 9.08 percent D) 13.39 percent E) 12.75 percent

D) Discount rate

3) 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

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

4) The dividend growth model: A) assumes dividends increase at a decreasing rate. B) only values stocks at Time 0 C) cannot be used to valuc 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.

C) a decrease in all stock values.

5) Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect: A) an increase in all stock values B) all stock values to remain constant. C) a decrease in all stock values. D) dividend-paying stocks to maintain a constant price while non-dividend paying stocks decrease in value. E) dividend-paying stocks to increase in price while non-dividend paying stocks remain constant in value

D) is unsustainable over the long term.

6) Supernormal growth is a growth rate that: A) is both positive and follows a year or more of negative growth. B) exceeds a firm's previous year's rate of growth C) is generally constant for an infinite period of time. D) is unsustainable over the long term. E) applies to a single, abnormal year

c) D)g

7) Which one of the following represents the capital gains yield as used in the dividend growth model? A) D1 B) D1/Po c) Po D) g E) g/Po

D) Determining the amount of the dividend to be paid per share

8) Which one of the following rights is never directly granted to all shareholders of a publicly held corporation? A) Electing the board of directors B) Receiving a distribution of company profits C) Voting either for or against a proposed merger or acquisition D) Determining the amount of the dividend to be paid per share E) Having first chance to purchase any new equity shares that may be offered

E) Corporate shareholders may receive a tax break on a portion of their dividend income.

9) Which one of the following statements related to corporate dividends is correct? A) Dividends are nontaxable income to shareholders. B) Dividends reduce the taxable income of the corporation. C) The chief executive officer of a corporation is responsible for declaring dividends D) The chief financial officer of a corporation determines the amount of dividend to be paid. E) Corporate shareholders may receive a tax break on a portion of their dividend income.