Test Review 2

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Chapter 4 The Value of Common Stocks

Multiple Choice Questions

1.If the Vol. 100s is reported as 10,233 in the Wall Street Journal quotation, then the trading volume for that day of trading is: A)10,233 shares
B)102,330 shares
C)1,023,300 shares
D)10,233,000 shares

Answer: C
Type: Medium
Page: 60
Response: Trading volume = 10,233 * 100 = 1,023,300

2.The dividend yield reported as Yld. % in The Wall Street Journal quotation is calculated as follows: A)(dividends / hi)
B)(dividends / lo)
C)(dividends / close)
D)None of the above

Answer: C
Type: Medium
Page: 60

3.The Wall Street Journal quotation for a company has the following values: Div: 2.28, PE: 19, Close: 75.30. Calculate the dividend pay out ratio for the company. A)58%
B)12%
C)75%
D)None of the above

Answer: A
Type: Difficult
Page: 60
Response: EPS = (75.30)/19 = 3.9631 dividend payout = 2.28/3.9631 = 0.5753= 58%

4.If the Wall Street Journal Quotation for a company has the following values close: 26.00; Net chg: =+1.00; then the closing price for the stock for the previous trading day was? A)$26

B)$25
C)$27
D)None of the above.

Answer: B
Type: Medium
Page: 60
Response: Previous closing = today's closing net chg. = 26.00-1.00= $25.00

5.The value of a common stock today depends on:
A)Number of shares outstanding and the number of shareholders B)The Wall Street analysts
C)The expected future dividends and the discount rate D)Present value of the future earnings per share

Answer: C
Type: Easy
Page: 62

6.Super Computer Company's stock is selling for $100 per share today. It is expected that this stock will pay a dividend of 5 dollars per share, and then be sold for $120 per share at the end of one year. Calculate the expected rate of return for the shareholders. A)20%

B)25%
C)10%
D)15%

Answer: B
Type: Easy
Page: 62
Response: r = (120+5-100)/100 = 25%

7.PC Company stockholders expect to receive a year-end dividend of $10 per share and then be sold for $122 dollars per share. If the required rate of return for the stock is 20%, what is the current value of the stock? A)$100

B)$122
C)$132
D)$110

Answer: D
Type: Medium
Page: 62
Response: P = (122+10)/1.2 = 110
8.Macrohard Company expects to pay a dividend of $6 per share at the end of year one, $8 per share at the end of year two and then be sold for $136 per share. If the required rate on the stock is 20%, what is the current value of the stock? A)$100

B)$105
C)$110
D)$120

Answer: B
Type: Medium
Page: 62
Response: P = (6/1.2)+(8+136)/(1.2^2) = 105

9.The constant dividend growth formula P0 = D1/(r-g) assumes: A)The dividends are growing at a constant rate g forever. B)r > g
C)g is never negative.
D)Both A and B

Answer: D
Type: Medium
Page: 64

10.Casino Co. is expected to pay a dividend of $6 per share at the end of year one and these dividends are expected to grow at a constant rate of 8% per year forever. If the required rate of return on the stock is 20%, what is current value of the stock today? A)$30

B)$50
C)$100
D)$54

Answer: B
Type: Medium
Page: 64
Response: P = (6/(0.2-0.08) = 50

11.WorldTour Co. has just now paid a...
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