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Bài test tiếng Anh ngành ngân hàng và đáp án phần 9

1

1.

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
Equity securities are certificates of ownership of a corporation.
a.
True
b.
False
Ans: A

2.

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
Householdsown about 35% of the total value of all corporate equity.
a.

True
b.
False
Ans: A

3.

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
Pension funds are the largest institutional investors in equities.
a.
True
b.
False
Ans: A

4.

5.

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
Companies raise capital in secondary markets by issuing new securities.
a.
True
b.
False
Ans: B
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
An active secondary market for debt or equity securities makes raising new capital less
expensive for firms.
a.
True
b.
False
Ans: A


Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy


2
6.

1.

2.

For investors, the function of secondary markets is to provide marketability for the shares
of securities they own at a fair price.
a.
True
b.
False
Ans: A
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
Secondary market transactions in the United States mostly take place over the counter
and not in exchanges.
a.
True
b.
False
Ans: B
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
In terms of total volume of activity and total capitalization of the firms listed, the NYSE
is the largest in the world and NASDAQ is the second largest.
a.
True
b.
False
Ans: A

1.

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Medium
Direct search markets provide the best price information.
a.
True
b.
False
Ans: B

1.

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
Direct search is the least efficient type of secondary market.
a.
True
b.
False
Ans: A

2.

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
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.
a.
True


3
b.
False
Ans: B

2.

3.

4.

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
A broker market eliminates the need for time-consuming search for a fair deal by buying
and selling immediately from their inventory of securities.
a.
True
b.
False
Ans: B
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
NASDAQ is the best-known example of a direct market.
c.
True
d.
False
Ans: B
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
In an auction market, buyers and sellers confront each other directly and bargain over
price.
e.
True
f.
False
Ans: A

5.

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
The New York Stock Exchange is the best-known example of an auction market.
g.
True
h.
False
Ans: A

2.

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
Legally, common stockholders have unlimited liability.
a.
True
b.
False
Ans: B


4

7.

6.

7.

2.

3.

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
Owners of preferred stock are not guaranteed any dividend payments and have the
lowest-priority claim on the firm’s assets in the event of bankruptcy.
c.
True
d.
False
Ans: B
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
Preferred dividend payments are fixed amounts paid regularly, similar to the interest
payments on corporate bonds.
e.
True
f.
False
Ans: A
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Medium
The market considers preferred stock to be a debt security because the dividend payment
is a fixed contractual obligation and has credit ratings like bonds.
g.
True
h.
False
Ans: B
Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
Valuation of common and preferred stock is done using a different valuation formula than
that used for bonds.
a.
True
b.
False
Ans: A
Format: True/False
Learning Objective: LO 3
Level of Difficulty: Medium
In the general dividend-valuation model, the price of a share of stock is the present value
of all expected future dividends.
c.
True
d.
False
Ans: A


5

4.

Format: True/False
Learning Objective: LO 4
Level of Difficulty: Easy
For a company that has no growth, dividends stay constant over time.
a.
True
b.
False
Ans: A

5.

Format: True/False
Learning Objective: LO 4
Level of Difficulty: Easy
A fast growing company will pay constant dividends over time.
c.
True
d.
False
Ans: B

6.

Format: True/False
Learning Objective: LO 4
Level of Difficulty: Easy
The constant-growth stock has dividends growing at a constant rate over time.
e.
True
f.
False
Ans: A

7.

8.

Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
The constant-growth dividend model tells us that the current price of a share of stock is
the next period dividend divided by the difference between the discount rate and the
dividend growth rate.
g.
True
h.
False
Ans: A
Format: True/False
Learning Objective: LO 5
Level of Difficulty: Medium
Whenever the dividend growth rate exceeds the required rate of return, the constantgrowth model provides invalid solutions.
i.
True
j.
False
Ans: A


6

9.

10.

Format: True/False
Learning Objective: LO 5
Level of Difficulty: Medium
The value of a supernormal growth stock is the present value of the mixed growth
dividends and the present value of the constant-growth dividends.
k.
True
l.
False
Ans: A
Format: True/False
Learning Objective: LO 6
Level of Difficulty: Easy
Failure to pay a preferred dividend signals to the market that the firm is in serious
financial trouble.
m.
True
n.
False
Ans: A

11.

Format: True/False
Learning Objective: LO 6
Level of Difficulty: Easy
Preferred stock with no fixed maturity can be valued as a perpetuity.
o.
True
p.
False
Ans: A

12.

Format: True/False
Learning Objective: LO 6
Level of Difficulty: Easy
The bond valuation model can be used to value perpetual preferred stock.
q.
True
r.
False
Ans: B


7

13.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty:
The largest holders of equity securities are
a.
b.
c.
d.
Ans: d

14.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
Which ONE of the following statements is true about secondary markets?
a.
b.
c.
d.
Ans: a

15.

mutual funds.
pension funds.
foreign investors.
households.

In secondary markets, outstanding shares of stock are bought and sold among
investors.
For an investor, the function of secondary markets is to provide profitability for
the shares of securities they own.
An active secondary market causes firms to sell their new debt or equity issues at
a higher cost of funds.
All of the above are true statements

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
Which ONE of the following statements is true about secondary markets in the United
States?
a.
b.
c.
d.

In terms of total volume of activity and total capitalization of the firms listed, the
NASDAQ is the largest in the world and the NYSE is the second largest.
In terms of the number of companies listed and shares traded on a daily basis,
NASDAQ is larger than the NYSE.
Firms listed on the NASDAQ tend to be, on average, larger in size, and their
shares trade more frequently than firms whose securities trade on NYSE.
In the United States, most secondary market transactions are done over the
counter.

Ans: b

16.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
Which one of the following statements is NOT true about secondary markets?


8
a.
b.
c.
d.

In terms of total volume of activity and total capitalization of the firms listed, the
NASDAQ is the largest in the world and the NYSE is the second largest.
In terms of the number of companies listed and shares traded on a daily basis, the
NASDAQ is larger than the NYSE.
Firms listed on the NYSE tend to be, on average, larger in size and their shares
trade more frequently than firms whose securities trade on NASDAQ.
In the United States, most secondary market transactions are done on one of the
many stock exchanges.

Ans: a

17.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
In comparison to the NYSE,
a.
b.
c.
d.
Ans: c

18.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
Direct search markets are characterized by
a.
b.
c.
d.
Ans: c

19.

NASDAQ has less companies listed.
total share volume is lower on the NASDAQ.
firms listed on the NASDAQ tend to be smaller.
NASDAQ firms exceed NYSE listed firms in total capitalization.

complete price information.
extensive broker and dealer participation
private placement transactions and sale of common stock of small private
companies.
a high level of efficiency.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
The least efficient of all the different types of secondary markets is the
a.
b.
c.
d.
Ans: b

auction market.
direct search market.
dealer market.
broker market.


9

20.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
Which one of the following statements is NOT true about broker markets?
a.
b.
c.
d.
Ans: d

21.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
In brokered markets
a.
b.
c.
d.
Ans: d

22.

the commission charged by brokers is a lower cost to buyers and sellers than the
cost of direct search.
buyers and sellers are brought together for a transaction fee.
brokers build a pool of price information through their extensive contacts.
All of the above are true of broker markets.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
Which ONE of the following statements is true about dealer markets?
a.
b.
c.
d.
Ans: c

23.

Brokers bring buyers and sellers together to earn a fee, called a commission.
Brokers’ extensive contacts provide them with a pool of price information that
individual investors could not economically duplicate themselves.
Investors have an incentive to hire a broker because they charge a commission
that is less than the cost of direct search.
Brokers can guarantee an order because they have an inventory of securities.

NYSE is the best-known example of a dealer market.
A dealer market involves time-consuming search for a fair deal.
The advantage of a dealer over a brokered market is that brokers cannot guarantee
that an order will be executed promptly, while dealers can because they have an
inventory of securities.
All of the above are true of dealer markets.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
Dealer markets are characterized by
a.
b.

no time-consuming search for a fair deal.
a guarantee of order fulfillment because the dealer holds an inventory of
securities.


10
c.
d.
Ans: d

24.

improved market efficiency because dealers provide continuous bid and ask prices
for securities.
All of the above characterize dealer markets.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
Which one of the following statements is NOT true about auction markets?
a.
b.
c.
d.

In an auction market, buyers and sellers face each other directly and bargain over
price.
The NASDAQ is the most efficient stockmarket in the United States.
The New York Stock Exchange is the best-known example of an auction market.
The auctioneer in this case is the specialist, who is designated by the exchange to
represent orders placed by public customers.

Ans: b

25.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
Which one of the following statements is NOT true about common stock?
a.
b.
c.
d.
Ans: c

26.

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
Which ONE of the following statements is true about common stock?
a.
b.
c.
d.
Ans: c

27.

Common-stock holders have the right to vote on the selection of the board of
directors for the firm.
Common stock is considered to have no fixed maturity.
Owners of common stock are guaranteed dividend payments by the firm.
Common-stock holders have limited liability.

Common stock is considered to have a fixed maturity.
Owners of common stock are guaranteed dividend payment by the firm.
Owners of common stock have the lowest-priority claim on the firm’s assets in
the event of bankruptcy.
Common-stock holders have unlimited liability.

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
Which one of the following statements is NOT true about preferred stock?


11

a.
b.
c.
d.

Preferred stock represents ownership in the firm.
Owners of preferred stock are not guaranteed dividend payments by the firm.
Preferred stock dividends are fixed financial amounts paid regularly by the firm
just like bond coupon payments.
Preferred stock holders have limited voting privileges relative to common-stock
owners.

Ans: b

28.

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
Which ONE of the following statements is NOT true about preferred stock?
a.
b.
c.
d.

Preferred dividend payments are fixed amounts paid regularly by the firm,
similar to the interest payments on corporate bonds.
Preferred dividends are deductable from taxable income just like the interest on
bonds.
Preferred stock holders have limited voting privileges relative to common-stock
owners.
While preferred stock is legally classified as perpetuities, some issues do have a
fixed maturity.

Ans: b

29.

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
Owners of preferred stock
a.
b.
c.
d.
Ans: d

30.

have limited voting rights.
usually receive fixed dividend payments.
are given priority treatment over common stock with respect to dividends
payments and the claims against the firm’s assets in the event of bankruptcy or
liquidation.
All of the above statements are true.

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
Preferred stock is sometimes regarded like a debt security because
a.
b.

legally preferred stock is a debt security.
preferred dividend payments like bond interest payments are fixed amounts
regardless of the firm’s earnings.


12
c.
d.
Ans: b

31.

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
Applying the valuation procedure to common stocks is more difficult than applying it to
bonds because
a.
b.
c.
d.
Ans: d

32.

the size and timing of the dividend cash flows are less certain than the coupon
payments for bonds.
common stocks have no final maturity date.
unlike the rate of return, or yield, on bonds, the rate of return on common stock is
not directly observable.
All of the above are true.

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
Which one of the following statements is NOT true about the general dividend valuation
model?
a.
b.
c.
d.
Ans: b

33.

preferred dividends are deductable from taxable income just like interest
payments on bonds.
preferred stock holders receive a residual value and not a stated value.

The model does not assume any specific pattern for dividend growth.
It makes a specific assumption about when the stock is going to be sold in the
future.
The model calls for forecasting an infinite number of dividends for a stock.
All of the above are true.

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
Which ONE of the following statements is true about fast growth stocks?
a.
b.
c.
d.
Ans: b

These are firms that grow their sales at above-average rates and are expected to
do so for a length of time.
These are firms that grow their earnings at above-average rates and are expected
to do so for a length of time.
They generally pay dividends during their fast growth phase.
None of the above.


13

34.

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
The three simplifying assumptions that cover most stock growth patterns are
a.
b.
c.
d.
Ans: c

35.

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
Which one of the following statements is NOT true about zero-growth stocks?
a.
b.
c.
d.
Ans: c

36.

dividends that stay constant over time, dividends that grow at a constant rate,
and dividends that are equal to zero.
dividends that have a zero-growth rate, dividends that grow at a varying rate, and
dividends that are equal to zero.
dividends that stay constant over time, dividends that grow at a constant rate,
and dividends that have a mixed growth pattern.
None of the above.

Dividend stays constant over time.
The cash flow pattern resembles a perpetuity with a constant cash flow.
Dividend payment pattern shows constant growth over time.
There is no growth in dividends over time.

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
Which one of the following statements is NOT true about constant-growth stocks?
a.
b.
c.
d.

Dividend stays constant over time.
Mature companies with a history of stable growth show this pattern.
Dividends grow at a constant rate each period forever.
Dividends that are to be paid out in the distant future have a very small present
value and add little to the stock’s price.

Ans: a

37.

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
The constant-growth dividend model will provide invalid solutions when
a.
b.
c.
d.

the growth rate of the stock exceeds the required rate of return for the stock.
the growth rate of the stock is less than the required rate of return for the stock.
the growth rate of the stock is smaller than 10%.
None of the above.


14
Ans: a

38.

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
PV of dividends: Cortez, Inc., is expecting to pay out a dividend of $2.50 next year.
After that it expects its dividend to grow at 7 percent for the next four years. What is the
present value of dividends over the next five-year period if the required rate of return is
10 percent?
a.
$10.76
b.
$9.80
c.
$11.88
d.
$11.50
Ans: a
Feedback:
Expected dividends for Cortez, Inc., and their present value:
D2 = D1(1 + g) = $2.50(1 + 0.07) = $2.675
D3 = D2(1 + g) = $2.675(1.07) = $2.862
D4 = D3(1 + g) = $2.862(1.07) = $3.063
D5 = D4(1 + g) = $3.063(1.07) = $3.277
Present value of the dividends = PV(D1) + PV(D2) + PV(D3) + PV(D4) + PV(D5)

39.

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
PV of dividends: Next year Jenkins Traders will pay a dividend of $3.00. It expects to
increase its dividend by $0.25 in each of the following three years. If their required rate
of return is 14 percent, what is the present value of their dividends over the next four
years?
a.
$13.50
b.
$9.72
c.
$12.50
d.
$11.63
Ans: b
Feedback:


15
Expected dividends for Jenkins Traders and their present value:
D1 = $3.00;

D2 = $3.25;

D3 = $3.50;

D4 = $3.75

Present value of the dividends = PV(D1) + PV(D2) + PV(D3) + PV(D4)

40.

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
PV of dividends: Kleine Toymakers is introducing a new line of robotic toys, which it
expects to grow their earnings at a much faster rate than normal over the next three years.
After paying a dividend of $2.00 last year, it does not expect to pay a dividend for the
next three years. After that Kleine plans to pay a dividend of $4.00 in year 4 and then
increase the dividend at a rate of 10 percent in years 5 and 6. What is the present value of
the dividends to be paid out over the next six years if the required rate of rat of return is
15 percent?
a.
$13.24
b.
$12.00
c.
$6.57
d.
$10.24
Ans: c
Feedback:
Expected dividends for Kleine Toymakers and their present value:
D0 = $2.00;

D1 = D2 = D3 = $0

D4 = $4.00
D5 = D4(1 + g) = $4.00(1.10) = $4.40
D6 = D5(1 + g) = $4.40(1.10) = $4.84

Present value of the dividends = PV(D1) + PV(D2) +…………+ PV(D6)


16

41.

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
PV of dividends: Givens, Inc., 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?
a.
$1.25
b.
$6.46
c.
$8.37
d.
$7.23
Ans: d
Feedback:
Expected dividends for Givens, Inc., and their present value:
D0 = $1.25
D1 = D0(1 + g) = $1.25(1.25) = $1.563
D2 = D1(1 + g) = $1.563(1.30) = $2.031
D3 = D2(1 + g) = $2.031(1.35) = $2.742
D4 = D3(1 + g) = $2.742(1.30) = $3.565
Present value of the dividends = PV(D1) + PV(D2) + PV(D3) + PV(D4)

42.

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
PV of dividends: Jacobs Suppliers has not paid out any dividend in the last three years. It
does not expect to pay dividends in the next two years either as it recovers from an
economic slowdown. Three years from now it expects to pay a dividend of $2.50 and
then $3.00 in the following two years. What is the present value of the dividends to be
received over the next five years if the discount rate is 15 percent?
a.
b.
c.
d.
Ans: a

$4.85
$5.37
$5.50
$6.14


17
Feedback:
Expected dividends for Jacobs Suppliers and their present value:
D0 = D1 = D2 = $0;

D3 = $2.50;

D4 = $3.00;

D5 = $3.00

Present value of the dividends = PV(D1) + PV(D2) +…………+ PV(D5)

43.

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
Zero growth: Xinhua Manufacturing Company has been generating stable revenues but
sees no growth in it for the foreseeable future. The company’s last dividend was $3.25,
and it is unlikely to change the amount paid out. If the required rate of return is 12
percent, what is the stock worth today?
a.
$39.00
b.
$3.69
c.
$27.08
d.
$21.23
Ans: c
Feedback:

D0 = $3.25;

44.

g = 0; R = 12%

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
Zero growth: Zephyr Electricals is a company with no growth potential. Its last dividend
was $4.50, and it expects no change in future dividends. What is the current price of the
company’s stock given a discount rate of 9 percent?
a.
b.
c.
d.
Ans: b

$40.50
$50.00
$45.00
$500.00


18
Feedback:
D0 = $4.50;

45.

g = 0; R = 9%

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
Zero growth: Metasteel Limited Co. has a stable sales track record but does not expect
to grow in the next several years. Its last annual dividend was $5.75. If the required rate
of return on similar investments is 18 percent, what is the current stock price?
a.
$103.50
b.
$13.50
c.
$39.30
d.
$31.94
Ans: d
Feedback:
D0 = $5.75;

46.

g = 0; R = 18%

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
Zero growth: Ambassador Corp. sells household cleaners producing a revenue stream
that has remained unchanged in the last few years. The firm does not expect any change
in its sales or earnings in the next several years. The stock is currently selling at $46.88.
If the required rate of return is 16 percent, what is the dividend paid by this company?
a.
$2.93
b.
$4.65
c.
$6.89
d.
$7.50
Ans: d
Feedback:
P0 = $46.88;

g = 0; R = 16%


19

47.

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
Zero growth: A communications company pays annual dividends of $8.50 with no
possibility of it changing in the next several years. If the firm’s stock is currently selling
at $60.71, what is the required rate of return? (Round to nearest whole number.)
a.
14%
b.
16%
c.
13%
d.
15%
Ans: a
Feedback:
P0 = $60.71;

48.

g = 0; D0 = $8.50

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
Constant growth: You are interested in investing in a company that expects to grow
steadily at an annual rate of 6 percent for the foreseeable future. The firm paid a dividend
of $2.30 last year. If your required rate of return is 10 percent, what is the most you
would be willing to pay for this stock? (Round to the nearest dollar.)
a.
$58
b.
$61
c.
$23
d.
$24
Ans: b
Feedback:
D0 = $2.30;

49.

g = 6%;

R = 10%

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
Constant growth: Johnson Corporation has just paid a dividend of $4.45. The company
has forecasted a growth rate of 8 percent for the next several years. If the appropriate


20
discount rate is 14 percent, what is the current price of this stock? (Round to the nearest
dollar.)
a.
$74
b.
$32
c.
$80
d.
$60
Ans: c
Feedback:
D0 = $4.45;

50.

g = 8%;

R = 14%

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Hard
Constant growth: Ryder Supplies has its stock currently selling at $63.25. The company
is expected to grow at a constant rate of 7 percent. If the appropriate discount rate is 17
percent, what is the expected dividend, a year from now?
a.
$4.43
b.
$3.25
c.
$10.75
d.
$6.33
Ans: d
Feedback:
P0 = $63.25;

51.

g = 7%;

R = 17%

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
Constant growth: Prior, Inc., is expected to grow at a constant rate of 9 percent. If the
company’s next dividend is $2.75 and its current price is $37.35, what is the required rate
of return on this stock? (Round to the nearest percent.)
a.
13%
b.
16%
c.
20%
d.
21%
Ans: b
Feedback:


21

D1 = $2.75;

52.

P0 = $37.35;

g = 9%

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
Constant growth: A company is growing at a constant rate of 8 percent. Last week it
paid a dividend of $3.00. If the required rate of return is 15 percent, what is the price of
the stock three years from now?
a.
$58.31
b.
$46.29
c.
$51.02
d.
$42.83
Ans: a
Feedback:
R = 15%;

53.

D0 = $3.00;

g= 8%

Format: Multiple Choice
Learning Objective: LO 6
Level of Difficulty: Medium
Preferred stock valuation: Ajax Company has issued perpetual preferred stock 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 stock’s current market price?
a.
$12.90
b.
$70.97
c.
$53.27
d.
$62.14
Ans: b
Feedback:
D = 5.5% ($100) = $5.50;

R = 7.75%


22

54.

Format: Multiple Choice
Learning Objective: LO 6
Level of Difficulty: Medium
Preferred stock valuation: The National Bank of Columbia has issued perpetual
preferred stock with a $100 par value. The bank pays a quarterly dividend of $1.40 on
this stock. What is the current price of this preferred stock given a required rate of return
of 8.5 percent?
a.
$23.06
b.
$65.88
c.
$37.57
d.
$43.25
Ans: b
Feedback:
Quarterly dividend = $1.40
Required rate of return = R = 8.5%

55.

Format: Multiple Choice
Learning Objective: LO 6
Level of Difficulty: Medium
Preferred stock: The preferred stock 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
stock?
a.
$9.75
b.
$11.32
c.
$10.76
d.
$8.53
Ans: c
Feedback:
P0 = $110.35; R = 9.75%


23

56.

Format: Multiple Choice
Learning Objective: LO 6
Level of Difficulty: Hard
Preferred stock: Each quarter, Transam, Inc., pays a dividend on its perpetual preferred
stock. Today, the stock is selling at $83.45. If the required rate of return for such stocks is
10.5 percent, what is the quarterly dividend paid by this firm?
a.
$8.76
b.
$10.50
c.
$2.19
d.
$2.63
Ans: c
Feedback:
P0 = $83.45;

R = 10.5%

Annual dividend = $8.76
Quarterly dividend = $8.76 /4 = $2.19

57.

Format: Multiple Choice
Learning Objective: LO 6
Level of Difficulty: Hard
Preferred stock valuation: The Columbia Consumer Products Co. has issued perpetual
preferred stock with a $100 par value. The firm pays a quarterly dividend of $2.60 on this
stock. What is the current price of this preferred stock given a required rate of return of
12.5 percent?
a.
$47.25
b.
$80.00
c.
$20.80
d.
$83.20
Ans: d
Feedback:
Quarterly dividend = $2.60


24
Required rate of return = R = 12.5%


25

58.

Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Hard
Nonconstant growth: Starskeep, Inc., is a fast growing technology company. The firm
projects a rapid growth of 40 percent for the next two years and then a growth rate of 20
percent for the following two years. After that, the firm expects a constant-growth rate of
8 percent. The firm expects to pay its first dividend of $1.25 a year from now. If your
required rate of return on such stocks is 20 percent, what is the current price of the stock?
a.
$15.63
b.
$4.70
c.
$30.30
d.
$22.68
Ans: a
Feedback:
g1 = g2 = 40%,
D1 = $1.25,

g3 = g4 = 20%,
D2 = $1.25(1.40) = $1.75,

D4 = $2.10(1.20) = $2.52,

59.

g = 8%,

D1 = $1.25,

R = 20%

D3 = $1.75(1.20) = $2.10

D5 = 2.52(1.08) = $2.722

Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Hard
Nonconstant growth: BioSci, Inc., a biotech firm 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 stock?
a.
$51.03
b.
$36.86
c.
$56.12
d.
$46.37
Ans: b
Feedback:
g1 = 30%;

g2 = 25%,

D1 = $2.00(1.30) = $2.60,

g4 = 20%,

g = 7%,

D2 = $2.60(1.25) = $3.25,

D0 = $2.00,

R = 16%

D3 = $3.25(1.20) = $3.90


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