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Exam 7: Valuing Stocks

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Question 61

Multiple Choice

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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 within each month.
C) random-walk behavior is reliable.
D) fundamental analysts outperform the S&P 500.

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Question 62

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A positive value for PVGO suggests that the firm has:

A) a positive return on equity.
B) a positive plowback ratio.
C) investment opportunities with superior returns.
D) a high rate of constant growth.

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Question 63

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What should be the current price of a share of stock if a $5 dividend was just paid, the stock has a required return of 20%, and a constant dividend growth rate of 6%?

When investors are not capable of making superior investment decisions on a continual basis based on past prices or public or private information, the market is said to be:

Market efficiency implies that security prices impound new information quickly.

Which of the following values treats the firm as a going concern?

What should you pay for a stock if next year's annual dividend is forecast to be $5.25, the constant-growth rate is 2.85%, and you require a 15.5% rate of return?

It is possible to ignore cash dividends that occur far into the future when using a dividend discount model because those dividends:

What price would you pay today for a stock if you require a rate of return of 13%, the dividend growth rate is 3.6%, and the firm recently paid an annual dividend of $2.50?

In the calculation of rates of return on common stock, dividends are _______ and capital gains are ______.

A stock currently sells for $50 per share, has an expected return of 15%, and an expected capital appreciation rate of 10%. What is the amount of the expected dividend?

How can you reconcile the fact that whether an investor favors dividends or capital gains, the investor should accept the dividend discount model as a determination of share value?

The dividend discount model indicates that the value of a stock is the present value of the dividends it will pay over the investor's horizon, plus the present value of the expected stock price at the end of that horizon.

The study of published financial information on a company in order to make investment decisions is known as:

Technical analysts are most likely to be successful in a market that is considered to be:

When valuing stock with the dividend discount model, the present value of future dividends will:

Reinvesting earnings into a firm will not increase the stock price unless:

What should be the stock value one year from today for a stock that currently sells for $35, has a required return of 15%, an expected dividend of $2.80, and a constant dividend growth rate of 7%?

What is the value of the expected dividend per share for a stock that has a required return of 16%, a price of $45, and a constant-growth rate of 12%?

What is the expected constant-growth rate of dividends for a stock with a current price of $87, an expected dividend payment of $5.40 per share, and a required return of 16%?