# 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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