1. A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock’s current price?
a. $17.39
b. $17.84
c. $18.29
d. $18.75
e. $19.22
2. A share of common stock just paid a dividend of $1.00. If the growth rate for this stock is 5.4%, and if investors’ required rate of return is 11.4%, what is the stock price?
a. $16.28
b. $16.70
c. $17.13
d. $17.57
e. $18.01
3. Company A’s stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 4.75% per year. The required rate of return on the stock, rs, is 11.50%. What is the stock’s expected price 5 years from now?
a. $40.17
b. $41.20
c. $42.26
d. $43.34
e. $44.46
4. If D0 = $1.75, g (which is constant) = 3.6%, and P0 = $32.00, what is the stock’s expected total return for the coming year?
a. 8.37%
b. 8.59%
c. 8.81%
d. 9.03%
e. 9.27%
5. Which one of following is the rate at which a stock’s price is expected to appreciate?
a. current yield
b. total return
c. dividend yield
d. capital gains yield
e. coupon rate
6. Company A has paid an annual dividend of $1.00 per share on its common stock for the past fifteen years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm’s stock is:
a. basically worthless as it offers no growth potential.
b. equal in value to the present value of $1 paid one year from today.
c. priced the same as a $1 perpetuity.
d. valued at an assumed growth rate of one percent.
e. worth $1 a share in the current market.
7. HCB currently pays an annual dividend of $1.35 and plans on increasing that amount by 2.5 percent each year. VHB currently pays an annual dividend of $1.20 and plans on increasing its dividend by 3 percent annually. Given this information, you know for certain that the stock of HCB has a higher ______ than the stock of VHB.
a. market price.
b. dividend yield.
c. capital gains yield.
d. total return.
e. The answer cannot be determined based on the information provided.
8. The common stock of TM pays an annual dividend of $1.65 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return?
a. $13.75
b. $14.01
c. $14.56
d. $14.79
e. $15.23
9. NG recently paid a $2.80 annual dividend on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $26.91 a share. What is the market rate of return?
a. 13.88 percent
b. 14.03 percent
c. 14.21 percent
d. 14.37 percent
e. 14.60 percent
10. DS will pay an annual dividend of $1.46 a share next year with future dividends increasing by 4.2 percent annually. What is the market rate of return if the stock is currently selling for $42.10 a share?
a. 6.55 percent
b. 7.13 percent
c. 7.46 percent
d. 7.67 percent
e. 8.29 percent
11. GL Health Care common stock offers an expected total return of 9.2 percent. The last annual dividend was $2.10 a share. Dividends increase at a constant 2.6 percent per year. What is the dividend yield?
a. 3.75 percent
b. 4.20 percent
c. 4.55 percent
d. 5.25 percent
e. 6.60 percent
12. Company A’s common stock returned a nifty 23.5 percent rate of return last year. The dividend amount was $0.25 a share which equated to a dividend yield of 0.95 percent. What was the rate of price appreciation for the year?
a. 22.55 percent
b. 23.38 percent
c. 23.60 percent
d. 23.87 percent
e. 23.52 percent
13. Company A’s last dividend (D0) was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm’s required return (rs) is 12.0%. What is the best estimate of the current stock price?
a. $37.05
b. $38.16
c. $39.30
d. $40.48
e. $41.70
14. Company A just paid a dividend of D0 = $1.32. Analysts expect the company’s dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock’s current market value?
a. $41.59
b. $42.65
c. $43.75
d. $44.87
e. $45.99
15. Company A’s last dividend (D0) was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price?
a. $41.58
b. $42.64
c. $43.71
d. $44.80
e. $45.92
