Chapter 08 Valuing Stocks Answer Key
Multiple Choice Questions
1.
Which of these investors earn returns from receiving dividends and from stock price
appreciation?
2.
As residual claimants, which of these investors claim any cash flows to the firm that
remain after the firm pays all other claims?
3.
When residual cash flows are high, stock values will be:
4.
Trading at physical exchanges like the New York Stock Exchange and the American Stock
Exchange takes place:
5.
Why is the ask price higher than the bid price?
6.
The Dow Jones Industrial Average (DJIA) includes:
7.
The Standard & Poor’s 500 Index includes:
8.
The NASDAQ Composite includes:
9.
Which of the following will only be executed if the order’s price conditions are met?
10.
Investors buy stock at the:
11.
Investors sell stock at the:
12.
Which of these are valued as a special zero-growth case of the constant growth rate
model?
13.
Stock valuation model dynamics make clear that lower discount rates lead to:
14.
Stock valuation model dynamics make clear that higher growth rates lead to:
15.
We can estimate a stock’s value by:
16.
Many companies grow very fast at first, but slower future growth can be expected. Such
companies are called:
17.
We often use the P/E ratio model with the firm’s growth rate to estimate:
18.
Value stocks usually have:
19.
Dividend yield is defined as:
20.
The size of the firm measured as the current stock price multiplied by the number of
shares outstanding is referred to as the firm’s:
21.
Stock Index Performance On November 26, 2007, The Dow Jones Industrial Average
closed at 12,743.40, which was down 237.44 that day. What was the return (in percent) of
the stock market that day?
Topic: Stock Index Performance
22.
Stock Index Performance On November 27, 2007, The Dow Jones Industrial Average
closed at 12,958.44, which was up 215.04 that day. What was the return (in percent) of the
stock market that day?
23.
Buying Stock with Commission At your discount brokerage firm, it costs $9.95 per stock
trade. How much money do you need to buy 100 shares of Ralph Lauren (RL), which
trades at $85.13?
24.
Buying Stock with Commission At your discount brokerage firm, it costs $8.50 per stock
trade. How much money do you need to buy 200 shares of Apple (AAPL), which trades at
$171.54?
25.
Selling Stock with Commissions At your full-service brokerage firm, it costs $110 per
stock trade. How much money do you receive after selling 100 shares of Time Warner, Inc.
(TMX), which trades at $22.62?
26.
Selling Stock with Commissions At your full-service brokerage firm, it costs $120 per
stock trade. How much money do you receive after selling 200 shares of Ralph Lauren
(RL), which trades at $85.13?
27.
Buying Stock with a Market Order You would like to buy shares of International Business
Machines (IBM). The current bid and ask quotes are $96.17 and $96.24, respectively. You
place a market buy-order for 100 shares that executes at these quoted prices. How much
money did it cost to buy these shares?
28.
Buying Stock with a Market Order You would like to buy shares of Nokia (NOK). The
current bid and ask quotes are $20.13 and $20.15, respectively. You place a market buy–
order for 300 shares that executes at these quoted prices. How much money did it cost to
buy these shares?
29.
Selling Stock with a Limit Order You would like to sell 100 shares of Pfizer, Inc. (PFE).
The current bid and ask quotes are $27.22 and $27.25, respectively. You place a limit sell–
order at $27.24. If the trade executes, how much money do you receive from the buyer?
30.
Selling Stock with a Limit Order You would like to sell 400 shares of International
Business Machines (IBM). The current bid and ask quotes are $96.24 and $96.17,
respectively. You place a limit sell-order at $96.20. If the trade executes, how much money
do you receive from the buyer?
31.
Value of a Preferred Stock If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in
annual dividends, and the required return on the preferred stock is 7 percent, what’s the
value of the stock?
32.
Value of a Preferred Stock If a preferred stock from Ecology and Environment, Inc. (EEI)
pays $2.50 in annual dividends, and the required return on the preferred stock is 5.8
percent, what’s the value of the stock?
33.
P/E Ratio and Stock Price International Business Machines (IBM) has earnings per share
of $6.85 and a P/E ratio of 15.19. What is the stock price?
34.
P/E Ratio and Stock Price Pfizer, Inc. (PFE) has earnings per share of $2.09 and a P/E
ratio of 11.02. What is the stock price?
35.
P/E Ratio and Stock Price Ralph Lauren (RL) has earnings per share of $3.85 and a P/E
ratio of 17.37. What is the stock price?