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(Difficulty Levels:
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PART I – New and Revised Carryover Problems and Questions
Multiple Choice:
Problems
Expected dividend yield
Answer: a
EASY
1
.
If D
1
= $2.00, g (which is constant) = 6%, and P
0
= $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 dividend yield
Answer: c
EASY
2
.
If D
0
= $2.00, g (which is constant) = 6%, and P
0
= $40, what is the
stock’s expected dividend yield for the coming year?
a. 5.0%
b. 5.1%
c. 5.3%
d. 5.6%
e. 5.8%
Expected return, dividend yield, and capital gains yield
Answer: e
EASY
3
.
If D
1
= $2.00, g (which is constant) = 6%, and P
0
= $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: b
EASY
4
.
If D
1
= $2.00, g (which is constant) = 6%, and P
0
= $40, what is the
stock’s expected total return for the coming year?
a. 10.8%
b. 11.0%
c. 11.2%
d. 11.4%
e. 11.6%
Chapter 9:
Stocks and Their Valuation
Page 233
CHAPTER
9
STOCKS
AND
THEIR
VALUATION
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View Full Document Expected total return
Answer: d
EASY
5
.
If D
0
= $2.00, g (which is constant) = 6%, and P
0
= $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: a
EASY
6
.
A stock is expected to pay a dividend of $1 at the end of the year.
The
required rate of return is r
s
= 11%, and the expected constant growth rate
is 5%.
What is the current stock price?
a. $16.67
b. $18.83
c. $20.00
d. $21.67
e. $23.33
Constant growth valuation
Answer: b
EASY
7
.
A stock just paid
a dividend of $1.
The required rate of return is r
s
=
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
8
.
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
Page 234
Chapter 9:
Stocks and Their Valuation
Constant growth stock price
Answer: e
EASY
9
.
A share of common stock has just paid a dividend of $2.00.
If the
expected longrun growth rate for this stock is 7%, and if investors
require a(n) 11% rate of return, what is the price of the stock?
a. $47.50
b. $49.00
c. $50.50
d. $52.00
e. $53.50
Constant growth rate
Answer: b
EASY
10
.
Hahn Manufacturing is expected to pay a dividend of $1.00 per share at the
end of the year (D
1
= $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%
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This note was uploaded on 01/23/2009 for the course FIN Fin335 taught by Professor Tomjanson during the Two '03 term at University of New England.
 Two '03
 TomJanson
 Valuation

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