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Exam 8: Stock Valuation

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Question 31

Multiple Choice

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Hightower Pharmacy just paid a $3.10 annual dividend.The company has a policy of increasing the dividend by 4.2 percent annually.You would like to purchase 100 shares of stock in this firm but realize that you will not have the funds to do so for another four years.If you require a 16 percent rate of return,how much will you be willing to pay per share for the 100 shares when you can afford to make this investment?

A) $31.50
B) $32.27
C) $33.12
D) $33.78
E) $34.47

F) All of the above
G) None of the above

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Question 32

Multiple Choice

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The next dividend payment by Hillside Markets will be $2.35 per share.The dividends are anticipated to maintain a 4.5 percent growth rate forever.The stock currently sells for $65 per share.What is the dividend yield?

A) 3.20 percent
B) 3.62 percent
C) 3.81 percent
D) 4.50 percent
E) 4.81 percent

F) C) and E)
G) A) and C)

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Question 33

Multiple Choice

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Harvey County Choppers,Inc.is experiencing rapid growth.The company expects dividends to grow at 25 percent per year for the next 7 years before leveling off to 7 percent into perpetuity.The required return on the stock is 12 percent.What is the current stock price if the annual dividend share that was just paid was $1.05?

Galloway,Inc.has an odd dividend policy.The company has just paid a dividend of $7 per share and has announced that it will increase the dividend by $2 per share for each of the next 5 years,and then never pay another dividend.How much are you willing to pay per share today to buy this stock if you require a 15 percent return?

Which of the following apply to a specialist who trades on the floor of the NYSE? I.provides liquidity for an individual security II.partially being replaced by SuperDOT III.pays an annual fee for a trading license IV.acts as a dealer

Explain the primary change that occurred in the structure of the NYSE in 2006 and how that change affected the exchange members.

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf.What is the granting of this authority called?

Hardy Lumber has a capital structure which includes bonds,preferred stock,and common stock. Which of the following rights have most likely been granted to the preferred shareholders? I.right to share in company profits prior to other shareholders II.right to elect the corporate directors III.right to vote on proposed mergers IV.right to all residual income after the common dividends have been paid

Upper Crust Bakers just paid an annual dividend of $3.10 a share and is expected to increase that amount by 4 percent per year.If you are planning to buy 1,000 shares of this stock next year,how much should you expect to pay per share if the market rate of return for this type of security is 12 percent at the time of your purchase?

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?

Suppose you know a company's stock currently sells for $85 per share and the required return on the stock is 10 percent.You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield.What is the current dividend if it's the company's policy to always maintain a constant growth rate in its dividends?

A floor broker on the NYSE does which one of the following?

Answer this question based on the dividend growth model.If you expect the market rate of return to increase across the board on all equity securities,then you should also expect:

The common stock of Textile Mills 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?

You want to purchase some shares of Green World stock but need a 15 percent rate of return to compensate for the perceived risk of such ownership.What is the maximum you are willing to spend per share to buy this stock if the company pays a constant $0.90 annual dividend per share?

Douglass Gardens pays an annual dividend that is expected to increase by 3.6 percent per year.The stock commands a market rate of return of 12.6 percent and sells for $28.50 a share.What is the expected amount of the next dividend?

You own 600 shares of a NASDAQ listed stock that you wish to sell.Which of the following are options available to you for this purpose? I.sell the shares to a dealer at the dealer's bid price II.sell directly to another individual via an ECN III.offer the shares yourself on NASDAQ via an ECN IV.have a broker offer the shares for sale on the NYSE

An agent who maintains an inventory from which he or she buys and sells securities is called a:

What is the model called that determines the present value of a stock based on its next annual dividend,the dividend growth rate,and the applicable discount rate?

Which one of the following is computed by dividing next year's annual dividend by the current stock price?