# FINANCE

95. A firm’s recent dividend was \$4.00 per share. The stock is selling in the market place for \$55.00 per share. If investors are demanding 12% on this stock, what is this stock’s growth rate?
A. 4.73%
B. 4.41%
C. 5.91%
D. 6.14%

96. A stock is expected to pay a \$1.00 dividend per share. The growth rate is expected to be 4%. If investors demand 10% on this stock, what is the expected price of the stock 10 years from now?
A. \$24.68
B. \$22.17
C. \$25.00
D. \$26.93

97. A stock is expected to pay a \$4.00 dividend per share. The growth rate is expected to be 5%. If investors demand 10% on this stock, what is the expected price of the stock 10 years from now?
A. \$94.68
B. \$92.17
C. \$130.31
D. \$126.93

98. A stock is expected to pay a \$4.00 dividend per share. The growth rate is expected to be -1%. If investors demand 8% on this stock, what is the expected price of the stock 3 years from now?
A. \$54.68
B. \$52.17
C. \$41.06
D. \$43.12

99. A stock is expected to pay a \$5.00 dividend per share. The growth rate is expected to be -2%. If investors demand 8% on this stock, what is the expected price of the stock 5 years from now?
A. \$54.68
B. \$45.20
C. \$41.06
D. \$53.12

100. A firm’s stock is selling at \$95.00 per share. Its growth rate is 10% and investors demand 15% on this stock. What is the firm’s expected dividend?
A. \$4.75
B. \$5.95
C. \$6.25
D. \$5.50

101. A firm’s stock is selling at \$75.00 per share. Its growth rate is 10% and investors demand 17% on this stock. What is the firm’s expected dividend?
A. \$4.75
B. \$5.95
C. \$6.25
D. \$5.25

102. Which of the following statements is incorrect?
A. Preferred stock prices fluctuate with market interest rates and behave like corporate bond prices.
B. Common stock price changes with the value of the company’s underlying business.
C. Preferred stockholders have higher precedence for payment in the event of firm liquidation from bankruptcy.
D. All of these statements are correct.

103. A stock recently paid a dividend of \$3 per share. Its growth rate is expected to be 8%. Investors require a 10% return. The stock is selling in the market for \$140. What is this stock worth and is the stock undervalued or overvalued?
A. \$162; undervalued
B. \$162; overvalued
C. \$150; undervalued
D. \$150; overvalued

104. A stock recently paid a dividend of \$2.5 per share. Its growth rate is expected to be 8%. Investors require a 10% return. The stock is selling in the market for \$150. What is this stock worth and is the stock undervalued or overvalued?
A. \$125; undervalued
B. \$125; overvalued
C. \$135; undervalued
D. \$135; overvalued

105. Laura is considering two investments: Stock A and B. Both stocks have a P/E ratio of 19. Stock A has an expected growth rate of 5% and stock B has an expected growth rate of 13%. Which is the better stock and why?
A. Stock B is better because it is considered to be cheaper than Stock A.
B. Stock A is better because it is expected to grow at a slower rate and therefore will be less risky than Stock B.
C. Since the P/E ratios are the same, Laura would be indifferent between the two stocks.
D. None of these statements is correct.

106. Coca-Cola recently paid a \$3.00 dividend. Investors expect a 12% return on this stock. What is the difference in price if Coca-Cola is expected to grow at 6% versus 8%?
A. \$18
B. \$48
C. \$28
D. \$38

107. Coca-Cola recently paid a \$3.00 dividend. Investors expect a 12% return on this stock. What is the difference in price if Coca-Cola is expected to grow at 7% versus 8%?
A. \$11.40
B. \$16.80
C. \$21.60
D. \$19.40

108. Coca-Cola recently paid a \$3.00 dividend. Investors expect a 12% return on this stock. What is the percentage change in price if Coca-Cola is expected to grow at 7% versus 8%?
A. 31.29%
B. 19.82%
C. 21.60%
D. 26.17%

Essay Questions
109. Explain how the difference in the bid and ask prices might be considered a hidden cost to the investor.

110. What ten sectors of the economy are represented in the S&P 500 Index?

111. When might the constant growth model not be used?

112. Explain the characteristics of preferred stock.

113. Explain how stock is valued if the constant growth model cannot be used.

114. Under what conditions would the constant-growth-rate model not be appropriate?

115. What are the differences between common stock and preferred stock?

116. Explain how it is possible for the Dow Jones Industrial Average and the Nasdaq Composite to move in different directions in one day.

117. Consider two firms with the same P/E ratio. Explain how one could be described as expensive compared to the other.

118. Explain how important a firm’s growth is by creating an example of a growth and no-growth stock.

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