Chapter 9 - CHAPTER 9 STOCKS AND THEIR VALUATION...

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(Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard) 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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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
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Constant growth stock price Answer: e EASY 9 . A share of common stock has just paid a dividend of $2.00. If the expected long-run 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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Chapter 9 - CHAPTER 9 STOCKS AND THEIR VALUATION...

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