econ423quiz6

# econ423quiz6 - Econ 423, Summer 2009 Lauren Heller Homework...

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Econ 423, Summer 2009 Lauren Heller Homework Quiz #6 Name___________________________________ PID___________________________________ By signing my name and PID above, I agree to abide by the honor code during this quiz. I will only use the homework that I have completed on my own, and will not use any other notes or materials. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 1) A stock currently sells for \$25 per share and pays \$0.24 per year in dividends. What is an investor's valuation of this stock if she expects it to be selling for \$30 in one year and requires 15 percent return on equity investments? A) \$30.24 B) \$27.74 C) \$26.09 D) \$26.30 E) \$29.03 1) 2) In the one - period valuation model, a stock's value falls if the _________ rises. A) dividend B) current price C) required return on equity D) expected future price E) both (b) and (c) are correct. 2) 3) According to the Gordon growth model, what is an investor's valuation of a stock whose current dividend is \$1.00 per year if dividends are expected to grow at a constant rate of 10 percent over a long period of time and the investor's required return is 11 percent? A) \$110 B) \$11 C) \$10 D) \$5.24 E) \$100 3) 4) Suppose the average industry PE ratio for auto parts retailers is 20. What is the current price of Auto Zone stock if the retailer's earnings per share are projected to be \$1.85? A) \$10.81 B) \$37 C) \$9.25 D) \$21.85 4) 5) A firm is expected to pay a dividend of \$1.00 next year and the dividend is expected to grow at a constant rate of 4 percent over time. Some investors have required returns on investments in equity of 12 percent, some 10 percent, and some 8 percent. The market price of this firm's stock will be

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## econ423quiz6 - Econ 423, Summer 2009 Lauren Heller Homework...

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