chp05-cevap - CHAPTER 5- VALUING STOCKS 1. A stock paying...

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CHAPTER 5- VALUING STOCKS 1. A stock paying $5 in annual dividends sells now for $80 and has an expected return of 14%. What might investors expect to pay for the stock one year from now? A) $82.20 B) $86.20 C) $87.20 D) $91.20 Answer: B Difficulty: Medium Page: 139, 1st paragraph. Expected return = Div 1 1 o o + - P P P 14% = $5 $80 $80 1 + - P $11.20 = P 1 – $75 $86.20 = P 1 2. What should be the price for a common stock paying $3.50 annually in dividends if the growth rate is zero and the discount rate is 8%? A) $22.86 B) $28.00 C) $42.00 D) $43.75 Answer: D Difficulty: Medium Page: 144, 1st paragraph. P o = Div r = = 3.50 .08 $43.75 3. What constant growth rate in dividends is expected for a stock valued at $32.00 if next year’s dividend is forecast at $2.00 and the appropriate discount rate is 13%? A) 5.00% B) 6.25% C) 6.75% D) 15.38% Answer: C Difficulty: Medium Page: 145, 1st paragraph. $32.00 = 2.00 .13 - g $4.16 – 32 g = $2.00 $2.16 = 32 g .0675 = g 6.75% = g 4. If next year’s dividend is forecast to be $5.00, the constant growth rate is 4%, and the discount rate is 16%, then the current stock price should be: A) $31.25 B) $40.00 C) $41.67 D) $43.33
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Answer: D Difficulty: Medium Page: 145, 1st paragraph.
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This note was uploaded on 09/27/2011 for the course ECON 6000 taught by Professor Fayissa during the Spring '10 term at Middle Tennessee State University.

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chp05-cevap - CHAPTER 5- VALUING STOCKS 1. A stock paying...

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