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1. The dividend discount model indicates that the value of a stock is the present value of the
dividends it will pay over the investor's horizon, plus the present value of the expected stock price
at the end of that horizon.
2. An excess of market value over the book value of equity can be attributed to going concern
value.
3. Securities with the same expected risk should offer the same expected rate of return.
4. If investors believe a company will have the opportunity to make very profitable
investments in the future, they will pay more for the company's stock today.
5. The dividend discount model should not be used to value stocks in which the dividend
does not grow.
6. If the stock prices follow a random walk, successive stock prices are not related.
7. The liquidation value of a firm is equal to the book value of the firm.
8. Sustainable growth rates can be estimated by multiplying a firm's ROE by its dividend
payout ratio.
9. If the market is efficient, stock prices should be expected to react only to
new
information
that is released.
10. The intent of technical analysis is to discover patterns in past stock prices.
11. Technical analysts have no effect on the efficiency of the stock market.
12. Technical analysts would be more likely than other investors to index their portfolios.
13. Market efficiency implies that security prices impound new information quickly.
14. If security prices follow a random walk, then on any particular day the odds are that an
increase or decrease in price is equally likely.
15. Fundamental analysts attempt to get rich by identifying patterns in stock prices.
16. Strong-form market efficiency implies that one could earn above-average returns by
examining the history of a firm's stock price.
17. Market value, unlike book value and liquidation value, treats the firm as a going concern.
18. The dividend yield of a stock is much like the current yield of a bond. Both ignore
prospective capital gains or losses.
19. The dividend discount model states that today's stock price equals the present value of all
expected future dividends.
20. The growth of mature companies is primarily funded by:
21. The sustainable growth rate represents the ____ rate at which a firm can grow:
22. Wilt's has earnings per share of $2.98 and dividends per share of $.35. What is the firm's
sustainable rate of growth if its return on assets is 14.6% and its return on equity is 18.2%?
23. The sustainable rate of growth:
24. For a firm that repurchases its stock, the dividend discount model might best be applied
to the firm's:
25. A firm has 120,000 shares of stock outstanding, a sustainable rate of growth of 3.8, and
$648,200 in free cash flows. What value would you place on a share of this firm's stock if you
require a 14% rate of return?
26. As a result of its IPO, Facebook received:
27. If the general sentiment of investors is pessimistic, stock prices are more apt to:
28. What is the difference between a fundamental analyst and a technical analyst?
29. According to the semistrong form of market efficiency, when new information becomes
available in the market, the related stock prices will:
30. In the calculation of rates of return on common stock, dividends are _______ and capital
gains are ______.
31. What dividend yield would be reported in the financial press for a stock that currently
pays a $1 dividend per quarter and the most recent stock price was $40?
32. Which of the following values treats the firm as a going concern?
33. If a stock's P/E ratio is 13.5 at a time when earnings are $3 per year and the dividend
payout ratio is 40%, what is the stock's current price?
34. With respect to the notion that stock prices follow a random walk, several researchers
have concluded that:
35. What is the current price of a share of stock for a firm with $5 million in balance-sheet
equity, 500,000 shares of stock outstanding, and a price/book value ratio of 4?
36. A firm's liquidation value is the amount:
37. Which one of the following is
least
likely to account for an excess of market value over
book value of equity?
38. Firms with valuable intangible assets are more likely to show a(n):
39. Which of the following is inconsistent with a firm that sells for very near book value?
40. A stock paying $5 in annual dividends currently sells for $80 and has an expected return
of 14%. What might investors expect to pay for the stock one year from now?
41. A stock currently sells for $50 per share, has an expected return of 15%, and an expected
capital appreciation rate of 10%. What is the amount of the expected dividend?
42. The expected return on a common stock is equal to:
43. It is possible to ignore cash dividends that occur far into the future when using a dividend
discount model because those dividends:
