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EOC5355
Question MC #6
Cartwright Brothers' stock is currently selling for $40 a share. The stock is expected to
pay a $2 dividend at the end of the year. The stock's dividend is expected to grow at a
constant rate of 7 percent a year forever. The riskfree rate (rRF) is 6 percent and the
market risk premium (rM  rRF) is also 6 percent. What is the stock's beta?
a. 1.06
b. 1.00
c. 2.00
d. 0.83
e. 1.08
Question MC #4
The last dividend paid by a company was $2.20. Klein's growth rate is expected to be 10
percent for one year, after which dividends are expected to grow at a rate of 6 percent
forever. The company's stockholders require a rate of return on equity (rs) of 11 percent.
What is the current price of the stock?
a. $44.00
b. $46.64
c. $48.40
d. $48.64
e. $50.40
Question MC #3
If the stock market is semistrong efficient, which of the following statements is most
correct?
a. All stocks should have the same expected returns; however, they may have different
realized returns.
b. In equilibrium, stocks and bonds should have the same expected returns.
c. Investors can outperform the market if they have access to information which has not
yet been publicly revealed.
d. If the stock market has been performing strongly over the past several months, stock
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 Fall '09
 Johnson
 Economics

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