review exam
Fin 3010 Dr. Michello Summer 2007
Practice Problems
Expected dividend yield Answer: a EASY
i. If D1 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stock’s expected dividend yield for the coming year?
a. 5.0%
b. 6.0%
c. 7.0%
d. 8.0%
e. 9.0%
Expected return, dividend yield, and capital gains yield Answer: e EASY ii. If D1 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stock’s expected capital gains yield for the coming year?
a. 5.2%
b. 5.4%
c. 5.6%
d. 5.8%
e. 6.0%
Expected total return Answer: d EASY iii. If D0 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stock’s expected total return for the coming year?
a. 9.8%
b. 10.3%
c. 10.8%
d. 11.3%
e. 11.8%
Constant growth valuation Answer: b EASY iv. A stock just paid a dividend of $1. The required rate of return is rs = 11%, and the constant growth rate is 5%. What is the current stock price?
a. $15.00
b. $17.50
c. $20.00
d. $22.50
e. $25.00
Preferred stock valuation Answer: d EASY
v. Mark Walker Inc plans to issue preferred stock with a perpetual annual dividend of $2 per share and a par value of $25. If the required return on this stock is currently 8%, what should be the stock’s market value?
a. $22.00
b. $23.00
c. $24.00
d. $25.00
e. $26.00
Constant growth rate Answer: b EASY vi. Hahn Manufacturing is expected to pay a dividend of $1.00 per share at the end of the year (D1 = $1.00). The stock sells for $40 per share, and its required rate of return is 11%. The dividend is expected to grow at a constant rate, g, forever. What is Hahn's expected growth rate?
a. 8.00%
b. 8.50%
c. 9.00%
d. 9.50%
e. 10.00%
Future price of a constant growth stock Answer: e EASY vii. P. Daves Inc's stock is currently sells for $45 per share. The stock’s dividend is projected to increase at a constant rate of 4% per year. The required rate of return on the stock, rs, is 12%. What is Daves' expected
Practice Problems
Expected dividend yield Answer: a EASY
i. If D1 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stock’s expected dividend yield for the coming year?
a. 5.0%
b. 6.0%
c. 7.0%
d. 8.0%
e. 9.0%
Expected return, dividend yield, and capital gains yield Answer: e EASY ii. If D1 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stock’s expected capital gains yield for the coming year?
a. 5.2%
b. 5.4%
c. 5.6%
d. 5.8%
e. 6.0%
Expected total return Answer: d EASY iii. If D0 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stock’s expected total return for the coming year?
a. 9.8%
b. 10.3%
c. 10.8%
d. 11.3%
e. 11.8%
Constant growth valuation Answer: b EASY iv. A stock just paid a dividend of $1. The required rate of return is rs = 11%, and the constant growth rate is 5%. What is the current stock price?
a. $15.00
b. $17.50
c. $20.00
d. $22.50
e. $25.00
Preferred stock valuation Answer: d EASY
v. Mark Walker Inc plans to issue preferred stock with a perpetual annual dividend of $2 per share and a par value of $25. If the required return on this stock is currently 8%, what should be the stock’s market value?
a. $22.00
b. $23.00
c. $24.00
d. $25.00
e. $26.00
Constant growth rate Answer: b EASY vi. Hahn Manufacturing is expected to pay a dividend of $1.00 per share at the end of the year (D1 = $1.00). The stock sells for $40 per share, and its required rate of return is 11%. The dividend is expected to grow at a constant rate, g, forever. What is Hahn's expected growth rate?
a. 8.00%
b. 8.50%
c. 9.00%
d. 9.50%
e. 10.00%
Future price of a constant growth stock Answer: e EASY vii. P. Daves Inc's stock is currently sells for $45 per share. The stock’s dividend is projected to increase at a constant rate of 4% per year. The required rate of return on the stock, rs, is 12%. What is Daves' expected