Equity Valuation Questions
LECTURE 8
STOCK VALUATION CLASS QUESTION 8
1. Dividend yield example: If two companies both pay annual dividends of $1 per share, but ABC company's stock is trading at $20 while XYZ company's stock is trading at $40. In which company would an investor prefer to investment based on its dividend yield?
2. If the stock market is semi-strong efficient, which of the following statements is correct?
a.
All stocks should have the same expected returns; however, they may have different realized returns.
b.
In equilibrium, stocks and bonds should have the same expected returns.
c.
Investors can outperform the market if they have access to information which has not yet been publicly revealed.
d.
If the stock market has been performing strongly over the past several months, stock prices are more likely to decline than increase over the next several months.
e.
None of the above statements is correct.
3. Alpha's preferred stock currently has a market price equal to $80 per share. If the dividend paid on this stock is $6 per share, what is the required rate of return investors are demanding from Alpha's preferred stock?
a.
7.5%
b.
13.3%
c.
6.0%
d.
$6.00
e.
None of the above is a correct answer.
4. The last dividend on Spirex Corporation's common stock was $4.00, and the expected growth rate is 10 percent. If you require a rate of return of 20 percent, what is the highest price you should be willing to pay for this stock?
a.
$44.00
b.
$38.50
c.
$40.00
d.
$45.69
e.
$50.00
5. A share of common stock has a current price of $82.50 and is expected to grow at a constant rate of 10 percent. If you require a 14 percent rate of return, what is the current dividend on this stock?
a.
$3.00
b.
$3.81
c.
$4.29
d.
$4.75
e.
$6.13
6. You are given the following data:
(1)
The risk-free rate is 5 percent.
(2)
The required return on the market is 8 percent.
(3)
The expected growth rate for the firm is 4 percent.
(4)
The last dividend paid was $0.80 per share.
(5)
Beta is 1.3.
Now assume
STOCK VALUATION CLASS QUESTION 8
1. Dividend yield example: If two companies both pay annual dividends of $1 per share, but ABC company's stock is trading at $20 while XYZ company's stock is trading at $40. In which company would an investor prefer to investment based on its dividend yield?
2. If the stock market is semi-strong efficient, which of the following statements is correct?
a.
All stocks should have the same expected returns; however, they may have different realized returns.
b.
In equilibrium, stocks and bonds should have the same expected returns.
c.
Investors can outperform the market if they have access to information which has not yet been publicly revealed.
d.
If the stock market has been performing strongly over the past several months, stock prices are more likely to decline than increase over the next several months.
e.
None of the above statements is correct.
3. Alpha's preferred stock currently has a market price equal to $80 per share. If the dividend paid on this stock is $6 per share, what is the required rate of return investors are demanding from Alpha's preferred stock?
a.
7.5%
b.
13.3%
c.
6.0%
d.
$6.00
e.
None of the above is a correct answer.
4. The last dividend on Spirex Corporation's common stock was $4.00, and the expected growth rate is 10 percent. If you require a rate of return of 20 percent, what is the highest price you should be willing to pay for this stock?
a.
$44.00
b.
$38.50
c.
$40.00
d.
$45.69
e.
$50.00
5. A share of common stock has a current price of $82.50 and is expected to grow at a constant rate of 10 percent. If you require a 14 percent rate of return, what is the current dividend on this stock?
a.
$3.00
b.
$3.81
c.
$4.29
d.
$4.75
e.
$6.13
6. You are given the following data:
(1)
The risk-free rate is 5 percent.
(2)
The required return on the market is 8 percent.
(3)
The expected growth rate for the firm is 4 percent.
(4)
The last dividend paid was $0.80 per share.
(5)
Beta is 1.3.
Now assume