Finance Final (Ch 8)
A stock recently paid a dividend of $2.5 per share. Its growth rate is expected to be 8 percent. Investors require a 10 percent return. The stock is selling in the market for $150. What is this stock worth and is the stock undervalued or overvalued?
$135; overvalued
At your full-service brokerage firm, it costs $120 per stock trade. How much money do you receive after selling 200 shares of Ralph Lauren (RL), which trades at $85.13?
$16,906.00
Coca-Cola recently paid a $3.00 dividend. Investors expect a 12 percent return on this stock. What is the difference in price if Coca-Cola is expected to grow at 7 percent versus 8 percent?
$16.80
If Target Corp. (TGT) recently earned a profit of $6.07 earnings per share and has a P/E ratio of 16.5. The dividend has been growing at a 10 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 18 in five years?
$161.30, $175.96 respectively
A stock recently paid a dividend of $3 per share. Its growth rate is expected to be 8 percent. Investors require a 10 percent return. The stock is selling in the market for $140. What is this stock worth and is the stock undervalued or overvalued?
$162; undervalued
JPM has earnings per share of $3.75 and P/E of 47. What is the stock price?
$176.25
At your discount brokerage firm, it costs $10.50 per stock trade. How much money do you need to buy 100 shares of Apple (AAPL), which trades at $202.64? A) $20,253.50
$20,274.50
You would like to buy shares of International Business Machines (IBM). The current bid and ask quotes are $103.25 and $103.30, respectively. You place a market buy-order for 200 shares that executes at these quoted prices. How much money did it cost to buy these shares?
$20,660.00
Coca-Cola recently paid a $3.00 dividend. Investors expect a 12 percent return on this stock. What is the difference in price if Coca-Cola is expected to grow at 6 percent versus 8 percent?
$28
You would like to buy shares of Nokia (NOK). The current bid and ask quotes are $25.43 and $25.45, respectively. You place a market buy-order for 150 shares that executes at these quoted prices. How much money did it cost to buy these shares?
$3,817.50
A firm does not pay a dividend. It is expected to pay its first dividend of $1.50 per share in three years. This dividend will grow at 6 percent indefinitely. Using a 10 percent discount rate, compute the value of this stock.
$30.99
A firm's stock is selling at $95.00 per share. Its growth rate is 10 percent and investors demand 15 percent on this stock. What is the firm's expected dividend?
$4.75
Why is the ask price higher than the bid price?
It represents the gain a market maker achieves
Value stocks usually have
Low P/E ratios and high growth rates
International Business Machines (IBM) has earnings per share of $6.85 and a P/E ratio of 15.19. What is the stock price?
$104.05
Suppose Walmart (WMT) recently earned a profit of $5.10 per share and has a P/E ratio of 16.25. The dividend has been growing at a 6 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio declined to 12 in five years?
$110.91, $81.90 respectively
A firm does not pay a dividend. It is expected to pay its first dividend of $1.00 per share in two years. This dividend will grow at 5 percent indefinitely. Using a 12 percent discount rate, compute the value of this stock.
$12.76
Suppose that a firm's recent earnings per share and dividends per share are $5.00 and $1.00, respectively. Both are expected to grow at 5 percent. However, the firm's current P/E ratio of 18 seems high for this growth rate. The P/E ratio is expected to fall to 10 within five years. Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years. Then discount these cash flows using a 12 percent required rate.
$40.35
A firm recently paid a $0.30 annual dividend. The dividend is expected to increase by 8 percent in each of the next four years. In the fourth year, the stock price is expected to be $60. If the required rate for this stock is 10 percent, what is its value?
$42.13
A preferred stock from DLC pays $5.10 in annual dividends. If the required return on the preferred stock is 12.1 percent, what is the value of the stock?
$42.15
At your full-service brokerage firm, it costs $125 per stock trade. How much money do you receive after selling 200 shares of Time Warner, Inc. (TMX), which trades at $29.54?
$5,783.00
A firm's stock is selling at $75.00 per share. Its growth rate is 10 percent and investors demand 17 percent on this stock. What is the firm's expected dividend?
$5.25
Ultra Petroleum (UPL) has earnings per share of $1.75 and P/E of 42.56. What is the stock price?
$74.48
Coca-Cola recently paid a $3.00 dividend. Investors expect a 12 percent return on this stock. What is the percentage change in price if Coca-Cola is expected to grow at 7 percent versus 8 percent?
26.17 percent
Which of the following will only be executed if the order's price conditions are met?
A limit order
Studies of investor psychology have discovered that:
All of the options.
Which of the following is incorrect with respect to preferred stock?
All of the statements are correct
Which of the following statements is incorrect?
All of the statements are correct.
Which of the following is an electronic stock market without a physical trading floor?
Nasdaq Stock Market
A firm does not pay any dividends at this point in time. Which valuation method should be used on this stock?
P/E Ratio Model
To list a stock on the NYSE, a company must meet minimum requirements that include all of the following EXCEPT:
P/E ratio
Which of these are valued as a special zero-growth case of the constant growth rate model?
Preferred stock
Laura is considering two investments: Stock A and B. Both stocks have a P/E ratio of 19. Stock A has an expected growth rate of 5 percent and stock B has an expected growth rate of 13 percent. Which is the better stock and why?
Stock B is better because it is considered to be cheaper than Stock A.
We often use the P/E ratio model with the firm's growth rate to estimate
a stock's future price
The NASDAQ Composite includes
all of the stocks listed on the NASDAQ Stock Exchange.
Trading at physical exchanges like the New York Stock Exchange and the American Stock Exchange takes place:
at dealers' computers.
Investors sell stock at the
bid price
Sally has researched GLE and wants to pay no more than $50 for the stock. Currently, GLE is trading in the market for $54. Sally would be best served to:
buy using a limit order.
As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims?
common stockholders
We can estimate a stock's value by
discounting the future dividends and future stock price appreciation
Stock valuation model dynamics make clear that higher growth rates lead to
higher valuations
Stock valuation model dynamics make clear that lower discount rates lead to:
higher valuations
) The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm's
market capitalization
Target Corp. (TGT) recently earned a profit of $3.57 earnings per share and has a P/E ratio of 17.3. The dividend has been growing at a 14 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 23 in five years?
$118.85, $158.01 respectively
At your full-service brokerage firm, it costs $110 per stock trade. How much money do you receive after selling 100 shares of Time Warner, Inc. (TMX), which trades at $22.62?
$2,152.00
A fast growing firm recently paid a dividend of $1.00 per share. The dividend is expected to increase at a rate of 15 percent for the next 3 years. Afterwards, a more stable 6 percent growth rate can be assumed. If a 10 percent discount rate is appropriate for this stock, what is its value?
$33.54
Ralph Lauren (RL) has earnings per share of $3.85 and a P/E ratio of 17.37. What is the stock price?
$66.87
A firm is expected to pay a dividend of $3.00 next year and $3.21 the following year. Financial analysts believe the stock will be at their target price of $80.00 in two years. Compute the value of this stock with a required return of 13 percent.
$67.82
The Buckle (BKE) recently paid a $0.90 dividend. The dividend is expected to grow at a 19 percent rate. At the current stock price of $43.17, what is the return shareholders are expecting?
21.48 percent
A firm is expected to pay a $4.00 dividend per share. The stock is selling in the market place for $55.00 per share. If investors are demanding 12 percent on this stock, what is this stock's growth rate?
4.73 percent
The Standard & Poor's 500 Index includes:
500 firms that are the largest in their respective economic sectors
All of the following are stock market indices EXCEPT:
Mercantile 1000.
Which of the following indices best reflects the ten sectors of the economy?
Standard & Poor's 500
Which of these investors earn returns from receiving dividends and from stock price appreciation?
Stockholders
Which of the following statements is incorrect?
The Dow Jones Industrial Average includes 35 of the largest companies in the United States.
Which of the following is incorrect with respect to limit orders?
They can be used only to buy stock.
Individuals who use their own stock inventory and capital to buy and sell the stocks they represent are called:
market makers.
Investors buy stock at the
quoted ask price
Value stocks are:
stocks that have low P/E ratios and are selling at a bargain price.
Dividend yield is defined as
the last four quarters of dividend income expressed as a percentage of the current stock price
When residual cash flows are high, stock values will be:
unchanged.
Many companies grow very fast at first, but slower future growth can be expected. Such companies are called
variable growth rate firms
A firm does not pay a dividend. It is expected to pay its first dividend of $0.15 per share in three years. This dividend will grow at 9 percent indefinitely. Using a 10 percent discount rate, compute the value of this stock.
$12.40
ABC has a net profit margin of 3.3 percent on Sales of $10,000,000. The firm has 50,000 shares outstanding. If the firm's P/E is 19 times, how much is the stock selling for?
$125.40
At your discount brokerage firm, it costs $7.95 per stock trade. How much money do you receive after selling 250 shares of General Electric (GE), which trades at $55.19?
$13,789.55
A stock is expected to pay a $4.00 dividend per share. The growth rate is expected to be 5 percent. If investors demand 10 percent on this stock, what is the expected price of the stock 10 years from now?
$130.31
GEN has 3 million shares outstanding and a P/E ratio of 15. Its earnings per share is $3.00. What is GEN's market capitalization?
$135,000,000
A firm has been losing sales due to technological obsolescence. It projects growth for the future to be −2 percent. Its recent dividend was $2.00. What is the value of this stock when the required return is 9 percent?
$17.82
You would like to sell 100 shares of Pfizer, Inc. (PFE). The current bid and ask quotes are $27.22 and $27.25, respectively. You place a limit sell-order at $27.24. If the trade executes, how much money do you receive from the buyer?
$2,724.00
Consider a firm that had been priced using a 12 percent growth rate and a 16 percent required return. The firm recently paid a $5.00 dividend. The firm has just announced that because of a new joint venture, it will likely grow at a 12.5 percent rate. How much should the stock price change (in dollars and percentage)?
$20.71; 14.79 percent
Pfizer, Inc. (PFE) has earnings per share of $2.09 and a P/E ratio of 11.02. What is the stock price?
$23.03
GEN has 1 million shares outstanding and a P/E ratio of 12. Its earnings per share is $2.00. What is GEN's market capitalization?
$24,000,000
A firm has been losing sales due to technological obsolescence. It projects growth for the future to be −3 percent. Its recent dividend was $2.50. What is the value of this stock when the required return is 7 percent?
$24.25
A stock is expected to pay a $1.00 dividend per share. The growth rate is expected to be 4 percent. If investors demand 10 percent on this stock, what is the expected price of the stock 10 years from now?
$24.68
A fast growing firm recently paid a dividend of $0.50 per share. The dividend is expected to increase at a 25 percent rate for the next 3 years. Afterwards, a more stable 12 percent growth rate can be assumed. If a 15 percent discount rate is appropriate for this stock, what is its value?
$25.75
Consider a firm that had been priced using a 10 percent growth rate and a 14 percent required rate. The firm recently paid a $1.00 dividend. The firm has just announced that because of a new joint venture, it will likely grow at a 12 percent rate. How much should the stock price change (in dollars and percentage)?
$28.50, 104 percent
A preferred stock from DLC pays $3.00 in annual dividends. If the required return on the preferred stock is 9.3 percent, what is the value of the stock?
$32.26
ABC has a net profit margin of 4.3 percent on Sales of $12,000,000. The firm has 250,000 shares outstanding. If the firm's P/E is 16 times, how much is the stock selling for?
$33.02
At your discount brokerage firm, it costs $8.50 per stock trade. How much money do you need to buy 200 shares of Apple (AAPL), which trades at $171.54?
$34,316.50
Campbell Soup Co. paid a $1.55 dividend per share in 2012, which grew to $1.95 in 2017. This growth is expected to continue. What is the value of this stock at the beginning of 2017 when the required return is 10.5 percent?
$35.20
Consider a firm that had been priced using a 6 percent growth rate and a 9 percent required rate. The firm recently paid a $0.50 dividend. The firm has just announced that because of a new joint venture, it will likely grow at an 8 percent rate. How much should the stock price change (in dollars and percentage)?
$36.33, 206 percent
You would like to sell 400 shares of International Business Machines (IBM). The current bid and ask quotes are $96.24 and $96.17, respectively. You place a limit sell-order at $96.20. If the trade executes, how much money do you receive from the buyer?
$38,480.00
A firm does not pay a dividend. It is expected to pay its first dividend of $0.10 per share in two years. This dividend will grow at 11 percent indefinitely. Using a 13 percent discount rate, compute the value of this stock.
$4.42
Suppose that a firm's recent earnings per share and dividend per share are $2.50 and $1.00, respectively. Both are expected to grow at 5 percent. However, the firm's current P/E ratio of 23 seems high for this growth rate. The P/E ratio is expected to fall to 19 within five years. Compute a value for this stock. Assume a 10 percent required rate.
$42.00
Suppose that a firm's recent earnings per share and dividends per share are $2.50 and $1.00, respectively. Both are expected to grow at 10 percent. However, the firm's current P/E ratio of 22 seems high for this growth rate. The P/E ratio is expected to fall to 18 within five years. Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years. Then discount these cash flows using a 14 percent required rate.
$42.14
If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 7 percent, what's the value of the stock?
$42.86
If a preferred stock from Ecology and Environment, Inc. (EEI) pays $2.50 in annual dividends, and the required return on the preferred stock is 5.8 percent, what's the value of the stock?
$43.10
A stock is expected to pay a $4.00 dividend per share. The growth rate is expected to be −1 percent. If investors demand 8 percent on this stock, what is the expected price of the stock three years from now?
$43.12
A stock is expected to pay a $5.00 dividend per share. The growth rate is expected to be −2 percent. If investors demand 8 percent on this stock, what is the expected price of the stock five years from now?
$45.20
Suppose that a firm's recent earnings per share and dividends per share are $3.00 and $1.50, respectively. Both are expected to grow at 10 percent. However, the firm's current P/E ratio of 20 seems high for this growth rate. The P/E ratio is expected to fall to 16 within five years. Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years. Then discount these cash flows using a 14 percent required rate.
$46.89
Financial analysts forecast Best Buy Company (BBY) growth for the future to be 13 percent. Their recent dividend was $0.49. What is the value of their stock when the required rate of return is 14.13 percent?
$49.00
Best Buy Co. (BBY) paid a $0.27 dividend per share in 2003, which grew to $0.49 in 2017. This growth is expected to continue. What is the value of this stock at the beginning of 2017 when the required rate of return is 17.23 percent?
$49.03
Financial analysts forecast ABC Inc. growth for the future to be 12 percent. ABC's recent dividend was $1.60. What is the value of ABC stock when the required return is 15 percent?
$59.73
You would like to buy shares of Nokia (NOK). The current bid and ask quotes are $20.13 and $20.15, respectively. You place a market buy-order for 300 shares that executes at these quoted prices. How much money did it cost to buy these shares?
$6,045.00
A fast growing firm recently paid a dividend of $0.80 per share. The dividend is expected to increase at a rate of 30 percent rate for the next four years. Afterwards, a more stable 7 percent growth rate can be assumed. If a 10 percent discount rate is appropriate for this stock, what is its value?
$60.48
A firm recently paid a $1.00 annual dividend. The dividend is expected to increase by 10 percent in each of the next four years. In the fourth year, the stock price is expected to be $100. If the required rate for this stock is 14 percent, what is its value?
$62.87
Target Corp. (TGT) paid a $0.21 dividend per share in 2000, which grew to $0.52 in 2017. This growth is expected to continue. What is the value of this stock at the beginning of 2017 when the required rate of return is 14.77 percent?
$62.97
Financial analysts forecast Target Corp. (TGT) growth for the future to be 11 percent. Their recent dividend was $0.52. What is the value of their stock when the required rate of return is 11.89 percent?
$64.85
A firm is expected to pay a dividend of $2.00 next year and $2.14 the following year. Financial analysts believe the stock will be at their target price of $75.00 in two years. Compute the value of this stock with a required return of 10 percent.
$65.57
A firm recently paid a $0.50 annual dividend. The dividend is expected to increase by 10 percent in each of the next three years. In the third year, the stock price is expected to be $110. If the required return is 15 percent, what is its value?
$73.71
At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 100 shares of Ralph Lauren (RL), which trades at $85.13?
$8,522.95
Walmart (WMT) recently earned a profit of $3.13 per share and has a P/E ratio of 14.22. The dividend has been growing at a 12.5 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio declined to 10 in five years?
$80.20, $56.40 respectively
A fast growing firm recently paid a dividend of $1.00 per share. The dividend is expected to increase at a 25 percent rate for the next three years. Afterwards, a more stable 8 percent growth rate can be assumed. If a 10 percent discount rate is appropriate for this stock, what is its value?
$83.13
GEN has 10 million shares outstanding and a stock price of $89.25. What is GEN's market capitalization?
$892,500,000
At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 200 shares of General Electric (GE), which trades at $45.19?
$9,047.95
You would like to buy shares of International Business Machines (IBM). The current bid and ask quotes are $96.17 and $96.24, respectively. You place a market buy-order for 100 shares that executes at these quoted prices. How much money did it cost to buy these shares?
$9,624.00
A firm is expected to pay a dividend of $2.00 next year and $3.75 the following year. Financial analysts believe the stock will be at their price target of $125.00 in two years. Compute the value of this stock with a required rate of return of 15 percent.
$99.09
If on November 27, 2017, The Dow Jones Industrial Average closed at 12,958.44, which was up 215.04 that day. What was the return (in percent) of the stock market that day?
+1.69 percent
JUJU's dividend next year is expected to be $5.50. It is trading at $45 and is expected to grow at 4 percent per year. What is JUJU's dividend yield and capital gain?
12.22 percent; 4 percent
Annual dividends of Pfizer, Inc. (PFE) grew from $0.38 in 2000 to $1.15 in 2007. What was the annual growth rate?
17.14 percent
American Eagle Outfitters (AEO) recently paid a $0.38 dividend. The dividend is expected to grow at a 15.5 percent rate. At the current stock price of $24.07, what is the return shareholders are expecting?
17.32 percent
Annual dividends of Wal-Mart Stores (WMT) grew from $0.23 in 2000 to $0.83 in 2007. What was the annual growth rate?
20.12 percent
Home Depot (HD) recently paid a $0.90 dividend. The dividend is expected to grow at a 17 percent rate. At the current stock price of $33.08, what is the return shareholders are expecting?
20.18 percent
JUJU's dividend next year is expected to be $1.50. It is trading at $45 and is expected to grow at 9 percent per year. What is JUJU's dividend yield and capital gain?
3.33 percent; 9 percent
The Dow Jones Industrial Average (DJIA) includes
30 of the largest (market capitalization) and most active companies in the U.S. economy.
A firm's recent dividend was $4.00 per share. The stock is selling in the market place for $55.00 per share. If investors are demanding 12 percent on this stock, what is this stock's growth rate?
4.41 percent
A firm's recent dividend was $2.00 per share. The stock is selling in the market place for $50.00 per share. If investors are demanding 10 percent on this stock, what is this stock's growth rate?
5.77 percent
A firm is expected to pay a $2.00 dividend per share. The stock is selling in the market place for $50.00 per share. If investors are demanding 10 percent on this stock, what is this stock's growth rate?
6.00 percent
If on November 26, 2017, The Dow Jones Industrial Average closed at 12,743.40, which was down 237.44 that day. What was the return (in percent) of the stock market that day?
−1.83 percent
