Question 1

Exercise Bicycle Company is expected to pay a dividend in year 1 of $1.20, a dividend in year 2 of $1.50, and a dividend in year 3 of $2.00. After year 3, dividends are expected to grow at the rate of 10% per year. An appropriate required return for the stock is 14%. The stock should be worth _______ today.

Accepted Answer

A)   $33.00
B)   $39.86
C)   $55.00
D)   $66.00
E)   $40.68F) A) and B)
G) A) and C)

Question 2

Because the DDM requires multiple estimates, investors should

Accepted Answer

A)   carefully examine inputs to the model.
B)   perform sensitivity analysis on price estimates.
C)   not use this model without expert assistance.
D)   feel confident that DDM estimates are correct.
E)   carefully examine inputs to the model and perform sensitivity analysis on price estimates.F) All of the above
G) C) and D)

Question 3

You wish to earn a return of 11% on each of two stocks, C and D. Stock C is expected to pay a dividend of $3 in the upcoming year while stock D is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends for both stocks is 7%. The intrinsic value of stock C

Accepted Answer

A)   will be greater than the intrinsic value of stock D.
B)   will be the same as the intrinsic value of stock D.
C)   will be less than the intrinsic value of stock D.
D)   will be the same or greater than the intrinsic value of stock D.
E)   None of the options.F) All of the above
G) B) and E)

Question 4

Midwest Airline is expected to pay a dividend of $7 in the coming year. Dividends are expected to grow at the rate of 15% per year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. The stock of Midwest Airline has a beta of 3.00. The return you should require on the stock is

Accepted Answer

A)   10%.
B)   18%.
C)   30%.
D)   42%.E) C) and D)
F) B) and C)

Exam 18: Equity Valuation Models

You wish to earn a return of 11% on each of two stocks, C and D. Stock C is expected to pay a dividend of $3 in the upcoming year while stock D is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends for both stocks is 7%. The intrinsic value of stock C

Correct Answer
verified

Correct Answer
verified

Because the DDM requires multiple estimates, investors should

Correct Answer
verified

Correct Answer
verified

Exam 18: Equity Valuation Models

You wish to earn a return of 11% on each of two stocks, C and D. Stock C is expected to pay a dividend of $3 in the upcoming year while stock D is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends for both stocks is 7%. The intrinsic value of stock C

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Because the DDM requires multiple estimates, investors should

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified