Question 1

For a stock to be in equilibrium, two conditions are necessary: (1) The stock's market price must equal its intrinsic value as seen by the marginal investor and (2) the expected return as seen by the marginal investor must equal this investor's required return.

Accepted Answer

A) True 
 B)False

Question 2

Savickas Petroleum's stock has a required return of 12%, and the stock sells for $40 per share. The firm just paid a dividend of $1.00, and the dividend is expected to grow by 30% per year for the next 4 years, so D4 = $1.00(1.30) 4 = $2.8561. After t = 4, the dividend is expected to grow at a constant rate of X% per year forever. What is the stock's expected constant growth rate after t = 4, i.e., what is X?

Accepted Answer

A)   5.17%
B)   5.44%
C)   5.72%
D)   6.02%
E)   6.34%

Question 3

When a new issue of stock is brought to market, it is the marginal investor who determines the price at which the stock will trade.

Accepted Answer

A) True 
 B)False

Question 4

Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell?

Accepted Answer

A)   $104.27
B)   $106.95
C)   $109.69
D)   $112.50
E)   $115.38

Question 5

The preemptive right is important to shareholders because it

Accepted Answer

A)   allows managers to buy additional shares below the current market price.
B)   will result in higher dividends per share.
C)   is included in every corporate charter.
D)   protects the current shareholders against a dilution of their ownership interests.
E)   protects bondholders, and thus enables the firm to issue debt with a relatively low interest rate.

Question 6

The expected return on Natter Corporation's stock is 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT?

Accepted Answer

A)   The stock's dividend yield is 7%.
B)   The stock's dividend yield is 8%.
C)   The current dividend per share is $4.00.
D)   The stock price is expected to be $54 a share one year from now.
E)   The stock price is expected to be $57 a share one year from now.

Exam 7: Stocks, Stock Valuation, and Stock Market Equilibrium

The preemptive right is important to shareholders because it

Correct Answer
verified

Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell?

Correct Answer
verified

For a stock to be in equilibrium, two conditions are necessary: (1) The stock's market price must equal its intrinsic value as seen by the marginal investor and (2) the expected return as seen by the marginal investor must equal this investor's required return.

Correct Answer
verified

When a new issue of stock is brought to market, it is the marginal investor who determines the price at which the stock will trade.

Correct Answer
verified

The expected return on Natter Corporation's stock is 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT?

Correct Answer
verified

Correct Answer
verified

Exam 7: Stocks, Stock Valuation, and Stock Market Equilibrium

The preemptive right is important to shareholders because it

Correct AnswerverifiedShow Answer

Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell?

Correct AnswerverifiedShow Answer

For a stock to be in equilibrium, two conditions are necessary: (1) The stock's market price must equal its intrinsic value as seen by the marginal investor and (2) the expected return as seen by the marginal investor must equal this investor's required return.

Correct AnswerverifiedShow Answer

When a new issue of stock is brought to market, it is the marginal investor who determines the price at which the stock will trade.

Correct AnswerverifiedShow Answer

The expected return on Natter Corporation's stock is 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified