FinalExamPracticeQuestions0 - AFF2701 Semester 1 2011...

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AFF2701 Semester 1, 2011 Practice Questions Multiple Choice Questions Question1 How much should you pay for a share of stock that offers a constant growth rate of 12%, requires a 16% rate of return, and is expected to sell for $60 one year from now? A) Between $42.00 and $43.00 B) $45.00 C) $45.45 D) Between $53.00 and $54.00 Question 2 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 Question 3 What price would you expect to pay for a stock with 13% required rate of return, 4% rate of dividend growth, and an annual dividend of $2.50 which will be paid tomorrow? A) $27.78 B) $30.28 C) $31.10 D) $31.39 Question 4 What rate of return is expected from a stock that sells for $30 per share, pays $1.50 annually in dividends, and is expected to sell for $33 per share in one year? A) 5.00% B) 10.00% C) 14.09% D) 15.00% Question 5 ABC common stock is expected to have extraordinary growth of 20% per year for two years, at which time the growth rate will settle into a constant 6%. If the discount rate is 15% and the most recent dividend was $2.50, what should be the current share price? A) $31.16 B) $33.23 C) $37.42 D) $47.77 Question 6 What would be the expected price of a stock when dividends are expected to grow at a 25% rate for three years, then grow at a constant rate of 5%, if the stock’s required return is 13% and next year’s dividend will be $4.00? A) $61.60 B) $62.08 C) $68.62 D) $79.44 1
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Question 7 An example that specifically contradicts strong-form market efficiency in U.S. stock markets is that: A) excess profits are observed in cases of insider trading. B) stock prices follow predictable patterns in each month. C) the reliability of random walk behaviour. D) Question 8 Your broker suggests that you can make consistent, excess profits by purchasing stocks on the 20th of the month and selling them on the last day of the month. If this is true, then: A) the market is only semi-strong-form efficient. B) the market violates even weak-form efficiency. C) insiders will be the only investors to profit. D) prices follow a random walk. Question 9 Which of the following situations is most likely to occur today for a stock that went down in price yesterday? A) The stock will increase in price. B)
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This note was uploaded on 10/08/2011 for the course FINANCE 101 taught by Professor Jannis during the Three '11 term at Monash.

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FinalExamPracticeQuestions0 - AFF2701 Semester 1 2011...

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