Question 1

A stock is bought for $23.00 and sold for $27.00 one year later, immediately after it has paid a dividend of $1.50. What is the capital gain rate for this transaction?

Accepted Answer

A)  3.48%
B)  8.70%
C)  13.91%
D)  17.39%E) A) and B)
F) C) and D)

Question 2

Sinclair Pharmaceuticals, a small drug company, develops a vaccine that will protect against Helicobacter pylori, a bacteria that is the cause of a number of diseases of the stomach. It is expected that Sinclair Pharmaceuticals will experience extremely high growth over the next three years and will reinvest all of its earnings in expanding the company over this time. Earnings were $1.10 per share before the development of the vaccine and are expected to grow by 40% per year for the next three years. After this time, it is expected that growth will drop to 5% and stay there for the expected future. Four years from now Sinclair will pay dividends that are 75% of its earnings. If its equity cost of capital is 12%, what is the value of a share of Sinclair Pharmaceuticals today?

Accepted Answer

A)  $20.62
B)  $25.78
C)  $33.96
D)  $33.51E) B) and C)
F) B) and D)

Question 3

Which of the following formulas is INCORRECT?

Accepted Answer

A)  Divt = EPSt × Dividend Payout Rate
B)  PN = (rE - g) × DivN+1
C)  earnings growth rate = retention rate × return on new investment
D)  rE = (Divt / P0) + gE) C) and D)
F) B) and C)

Question 4

Which of the following formulas is INCORRECT?

Accepted Answer

A)  g = Retention Rate × Return on New Investment
B)  Divt = EPSt × Dividend Payout Rate
C)  P0 = Div1 / (rE - g) 
D)  rE = (Div1 / P0) - gE) A) and B)
F) A) and C)

Exam 7: Stock Valuation

Which of the following formulas is INCORRECT?

Correct Answer
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Which of the following formulas is INCORRECT?

Correct Answer
verified

A stock is bought for $23.00 and sold for $27.00 one year later, immediately after it has paid a dividend of $1.50. What is the capital gain rate for this transaction?

Correct Answer
verified

Correct Answer
verified

Exam 7: Stock Valuation

Which of the following formulas is INCORRECT?

Correct AnswerverifiedShow Answer

Which of the following formulas is INCORRECT?

Correct AnswerverifiedShow Answer

A stock is bought for $23.00 and sold for $27.00 one year later, immediately after it has paid a dividend of $1.50. What is the capital gain rate for this transaction?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified