FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 9: Share Valuation

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Multiple Choice

Review LaterAdd Note

Review Later

The least efficient of all the different types of secondary markets is the:

A) auction market.
B) direct search market.
C) dealer market.
D) brokered market.

Correct Answer

verified

Show Answer

Question 2

True/False

Review LaterAdd Note

Review Later

The bond valuation model can be used to value perpetual preference shares.

Correct Answer

verified

Show Answer

Question 3

Multiple Choice

Review LaterAdd Note

Which ONE of the following statements is true about secondary markets?

Which one of the following statements is NOT true about the general dividend valuation model?

Which one of the following statements is NOT true about zero-growth shares?

Non-constant growth: BioSciTech Ltd a biotech company has forecast the following growth rates for the next three years: 30 percent, 25 percent, and 20 percent. The company then expects to grow at a constant rate of 7 percent for the next several years. The company paid a dividend of $2.00 last week. If the required rate of return is 16 percent, what is the market value of this share?

Superannuation funds are the largest institutional investors in equities.

PV of dividends: Terry's Ltd is a fast growing technology company that paid a $1.25 dividend last week. The company's expected growth rates over the next four years are as follows: 25 percent, 30 percent 35 percent, and 30 percent. The company then expects to settle down to a constant-growth rate of 8 percent annually. If the required rate of return is 12 percent, what is the present value of the dividends over the fast growth phase?

In the general dividend-valuation model, the price of a share of share is the present value of all expected future dividends.

The value of a supernormal growth share is the present value of the mixed growth dividends and the present value of the constant-growth dividends.

For investors, the function of secondary markets is to provide marketability for the shares of securities they own at a fair price.

Which one of the following statements is NOT true about preference shares?

A broker market eliminates the need for time-consuming search for a fair deal by buying and selling immediately from their inventory of securities.

Non-constant growth: Denyer & Grant Ltd., is a fast growth share and expects to grow at a rate of 25 percent for the next four years. It then will settle to a constant-growth rate of 10 percent. The first dividend will be paid out in year 3 and will be equal to $5.00. If the required rate of return is 18 percent, what is the current price of the share?

Preference share valuation: Ajax Company has issued perpetual preference shares with a par of $100 and a dividend of 5.5 percent. If the required rate of return is 7.75 percent, what is the share's current market price?

The ASX is best described as a dealer market.

Zero growth: A communications company pays annual dividends of $8.50 with no possibility of it changing in the next several years. If the company's share is currently selling at $60.71, what is the required rate of return? (Round to nearest whole number.)

For a commission fee less than the cost of direct search, dealers give investors an incentive to make use of the information by hiring them as brokers.

An active secondary market for debt or equity securities makes raising new capital less expensive for companies.

Preference share: The preference share of Acme International is selling currently at $110.35. If your required rate of return is 9.75 percent, what is the dividend paid by this share?