JXN_2010_Fall_FIN320_Third_Exam_Student - Copy (2)

JXN_2010_Fall_FIN320_Third_Exam_Student - Copy (2) - McAfee...

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McAfee School of Business Union University FIN 320 – Third Examination – Fall 2010 Please enter your name and student identification number. Academic Honesty Statement By entering my name and student identification number below, I certify that I have not communicated in any way with any other person or group of persons in the completion of this examination. This examination is completely and entirely my own work and is not the work in any way either partially or completely of any other person or group of persons. Name ___________________________________________ Student Identification Number __________________________________ Preemptive right 1) The preemptive right is important to shareholders because it 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 dilution of their ownership interests. e. protects bondholders, and thus enables the firm to issue debt with a relatively low interest rate. Required return 2) Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT ? A B Required return 10% 12% Market price $25 $40 Expected growth 7% 9% a. These two stocks should have the same price. b. These two stocks must have the same dividend yield. c. These two stocks should have the same expected return. d. These two stocks must have the same expected capital gains yield. e. These two stocks must have the same expected year-end dividend. Dividend yield and g 3) Stocks A and B have the same price and are in equilibrium, but Stock A has the higher required rate of return. Which of the following statements is CORRECT ? 1
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FIN 320 Business Financial Management I – Third Examination a. If Stock A has a lower dividend yield than Stock B, its expected capital gains yield must be higher than Stock B’s. b. Stock B must have a higher dividend yield than Stock A. c. Stock A must have a higher dividend yield than Stock B. d. If Stock A has a higher dividend yield than Stock B, its expected capital gains yield must be lower than Stock B’s. e. Stock A must have both a higher dividend yield and a higher capital gains yield than Stock B. Declining constant growth stock 4) A stock is expected to pay a year-end dividend of $2.00, that is, D 1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT ? a. The company’s current stock price is $20. b. The company’s dividend yield 5 years from now is expected to be 10%. c.
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This note was uploaded on 12/01/2010 for the course FIN 320 taught by Professor Dane during the Fall '10 term at Illinois College.

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JXN_2010_Fall_FIN320_Third_Exam_Student - Copy (2) - McAfee...

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