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Unformatted text preview: Question 1 (2 points) Save (I) Preferred stockholders hold a claim on assets that has priority over the claims of common stockholders, but after that of bondholders. (II) Firms issue preferred stock in far greater amounts than common stock. a) (I) is false, (II) true. b) (I) is true, (II) false. c) Both are true. d) Both are false. Question 2 (2 points) Save 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) $27.74 b) $26.09 c) $26.30 d) $30.24 Question 3 (2 points) Save In the generalized dividend valuation model a stock's value depend only on a) its future dividend payments. b) its future price and the required return on investments on equity. c) its future dividend payments and the required return on equity. d) its future dividend payments and its future price. Question 4 (2 points) Save 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) $5.24 b) $10 c) $100 d) $11 e) $110 Question 5 (2 points) Save Holding other things constant, a stock's value will be highest if the investor's required return on investments in equity is a) 15 percent b) 20 percent c) 5 percent d) 10 percent Question 6 (2 points) Save A weakness of the PE approach to valuing stock is that it is a) difficult to estimate the constant growth rate of a firm's dividends. b) based on industry averages rather than firmspecific factors. c) difficult to estimate the required return on equity. d) difficult to predict how much a firm will pay in dividends. Question 7 (2 points) Save 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 slightly above a) $16.67. b) $25. c) $12.50. d) $18 . Question 8 (2 points) Save Which of the following are true of mortgages? a) Over 80 percent of mortgage loans finance residential home purchases. b) A borrower pays off a mortgage in a combination of principal and interest payments that result in full payment of the debt by maturity. c) A mortgage is a longterm loan secured by real estate. d) All of the above are true of mortgages. All of the above are true of mortgages....
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This note was uploaded on 02/21/2011 for the course FIN 3403 taught by Professor Duong during the Spring '08 term at The University of Oklahoma.
 Spring '08
 DUONG

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