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Posted by: argument
Date Posted: 4/4/12 3:17 AM
Due Date: 12/31/69

Question 20 1. Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? A B Price $25 $40 Expected growth 7% 9% Expected return 10% 12% The two stocks should have the same expected dividend. The two stocks could not be in equilibrium with the numbers given in the question. A's expected dividend is $0.50. B's expected dividend is $0.75. A's expected dividend is $0.75 and B's expected dividend is $1.20.

Question 21 1. Stocks A and B have the same price and are in equilibrium, but Stock A has the higher required rate of return. Which of the following statements is CORRECT? If Stock A has a lower dividend yield than Stock B, its expected capital gains yield must be higher than Stock B's. Stock B must have a higher dividend yield than Stock A. Stock A must have a higher dividend yield than Stock B. If Stock A has a higher dividend yield than Stock B, its expected capital gains yield must be lower than Stock B's. Stock A must have both a higher dividend yield and a higher capital gains yield than Stock B.

Question 22 1. Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? X Y Price $30 $30 Expected growth (constant) 6% 4% Required return 12% 10% Stock X has a higher dividend yield than Stock Y. Stock Y has a higher dividend yield than Stock X. One year from now, Stock X's price is expected to be higher than Stock Y's price. Stock X has the higher expected year-end dividend. Stock Y has a higher capital gains yield.

Question 23 Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? X Y Price $25 $25 Expected dividend yield 5% 3% Required return 12% 10% Stock Y pays a higher dividend per share than Stock X. Stock X pays a higher dividend per share than Stock Y. One year from now, Stock X should have the higher price. Stock Y has a lower expected growth rate than Stock X. Stock Y has the higher expected capital gains yield.

Question 24 1. The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT? If the market is in equilibrium, and if Stock Y has the lower expected dividend yield, then it must have the higher expected growth rate. If Stock Y and Stock X have the same dividend yield, then Stock Y must have a lower expected capital gains yield than Stock X. If Stock X and Stock Y have the same current dividend and the same expected dividend growth rate, then Stock Y must sell for a higher price. The stocks must sell for the same price. Stock Y must have a higher dividend yield than Stock X.

Question 25 1. A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT? The company's current stock price is $20. The company's dividend yield 5 years from now is expected to be 10%. The constant growth model cannot be used because the growth rate is negative. The company's expected capital gains yield is 5%. The company's expected stock price at the beginning of next year is $9.50.

Question 26 An increase in a firm's expected growth rate would cause its required rate of return to increase. decrease. fluctuate less than before. fluctuate more than before. possibly increase, possibly decrease, or possibly remain constant.

Question 27 1. Companies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT? All common stocks fall into one of three classes: A, B, and C. All common stocks, regardless of class, must have the same voting rights. All firms have several classes of common stock. All common stock, regardless of class, must pay the same dividend. Some class or classes of common stock are entitled to more votes per share than other classes.

Question 28 1. If markets are in equilibrium, which of the following conditions will exist? Each stock's expected return should equal its realized return as seen by the marginal investor. Each stock's expected return should equal its required return as seen by the marginal investor. All stocks should have the same expected return as seen by the marginal investor. The expected and required returns on stocks and bonds should be equal. All stocks should have the same realized return during the coming year.

Question 29 1. For a stock to be in equilibrium, that is, for there to be no long-term pressure for its price to depart from its current level, then the expected future return must be less than the most recent past realized return. The past realized return must be equal to the expected return during the same period. the required return must equal the realized return in all periods. the expected return must be equal to both the required future return and the past realized return. the expected future returns must be equal to the required return.

Question 30 1. Which of the following statements is CORRECT? Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation. The preferred stock of a given firm is generally less risky to investors than the same firm's common stock. Corporations cannot buy the preferred stocks of other corporations. Preferred dividends are not generally cumulative. A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.

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Posted by: argument
Date Posted: 4/4/12 3:17 AM