# review exam

Pages: 18 (4259 words) Published: October 13, 2014
﻿Fin 3010Dr. MichelloSummer 2007
Practice Problems

i.If D1 = \$2.00, g (which is constant) = 6%, and P0 = \$40, what is the stock’s expected dividend yield for the coming year?

a.5.0%
b.6.0%
c.7.0%
d.8.0%
e.9.0%

Expected return, dividend yield, and capital gains yieldAnswer: e EASY ii.If D1 = \$2.00, g (which is constant) = 6%, and P0 = \$40, what is the stock’s expected capital gains yield for the coming year?

a.5.2%
b.5.4%
c.5.6%
d.5.8%
e.6.0%

iii.If D0 = \$2.00, g (which is constant) = 6%, and P0 = \$40, what is the stock’s expected total return for the coming year?

a.9.8%
b.10.3%
c.10.8%
d.11.3%
e.11.8%

iv.A stock just paid a dividend of \$1. The required rate of return is rs = 11%, and the constant growth rate is 5%. What is the current stock price?

a.\$15.00
b.\$17.50
c.\$20.00
d.\$22.50
e.\$25.00

v.Mark Walker Inc plans to issue preferred stock with a perpetual annual dividend of \$2 per share and a par value of \$25. If the required return on this stock is currently 8%, what should be the stock’s market value?

a.\$22.00
b.\$23.00
c.\$24.00
d.\$25.00
e.\$26.00

vi.Hahn Manufacturing is expected to pay a dividend of \$1.00 per share at the end of the year (D1 = \$1.00). The stock sells for \$40 per share, and its required rate of return is 11%. The dividend is expected to grow at a constant rate, g, forever. What is Hahn's expected growth rate?

a. 8.00%
b. 8.50%
c. 9.00%
d. 9.50%
e.10.00%

Future price of a constant growth stockAnswer: e EASY
vii.P. Daves Inc's stock is currently sells for \$45 per share. The stock’s dividend is projected to increase at a constant rate of 4% per year. The required rate of return on the stock, rs, is 12%. What is Daves' expected price 6 years from now?

a.\$52.68
b.\$53.71
c.\$54.41
d.\$55.12
e.\$56.94

Constant growth valuation; CAPMAnswer: e MEDIUM
viii.The Corrigan Company just paid a dividend of \$1 per share, and that dividend is expected to grow at a constant rate of 5% per year in the future. The company's beta is 1.2, the market risk premium is 5%, and the risk-free rate is 3%. What is the company's current stock price?

a.\$19.25
b.\$21.00
c.\$22.75
d.\$24.50
e.\$26.25

ix.A share of preferred stock pays a quarterly dividend of \$1.00. If the price of the stock is \$50, what is the effective annual (not nominal) rate of return on the preferred stock?

a.7.88%
b.8.01%
c.8.24%
d.8.47%
e.8.70%

x.Johnston Corporation is growing at a constant rate of 6% per year. The cost of preferred stock (rp) is 8%. The par value of the preferred stock is \$120, and the stock has a stated dividend of 10% of par. What is the market value of the preferred stock?

a.\$125
b.\$120
c.\$175
d.\$150
e.\$200

xi.Wald Inc's stock has a required rate of return of 10%, and it sells for \$40 per share. Wald's dividend is expected to grow at a constant rate of 7% per year. What is the expected year-end dividend, D1?

a.\$0.90
b.\$1.00
c.\$1.10
d.\$1.20
e.\$1.30

Future price of a constant growth stockAnswer: b MEDIUM
xii.Bettis Corp.’s stock price is \$20 per share, and its expected year-end dividend is \$2 a share (D1 = \$2.00). The stock’s required return is 15%, and the dividend is expected to grow at a constant rate forever. What is the expected price of the stock 7 years from now?

a.\$27.18
b.\$28.14
c.\$29.95
d.\$30.45
e.\$31.81

xiii.You have been assigned the task of using the corporate valuation model to estimate Meric Corporation's the intrinsic value. Meric’s...