FINA Test 3 | 120 Questions And Answers
If stock prices follow a random walk, which of the following statement(s) is(are) correct? Correct Ans ➡ A. Successive stock price changes are not related.
B. The history of stock prices cannot be used to predict future returns to investors.
C. Both A and B.
In the calculation of rates of return on common stock, dividends are _______ and capital gains are ______. Correct Ans ➡ Not guaranteed; not guaranteed
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? Correct Ans ➡ 10.0%
Which of the following values treats the firm as a going concern? Correct Ans ➡ Market value
If a stock's P/E ratio is 13.5 at a time when earnings are $3 per year, what is the stock's current price? Correct Ans ➡ $40.50
How many round lots were traded in a specific stock on a day in which 467,800 shares changed hands? Correct Ans ➡ 4,678 round lots
The book value of a firm's equity is determined by: Correct Ans ➡ The difference between
book values of assets and liabilities.
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? Correct Ans ➡ $40.00
If the liquidation value of a firm is negative, then: Correct Ans ➡ The firm's debt exceeds the market value of assets.
A firm's liquidation value is the amount: Correct Ans ➡ Realized from selling all assets and paying off its creditors.
Which of the following is least likely to account for an excess of market value over book value of equity? Correct Ans ➡ Inaccurate depreciation methods
Firms with valuable intangible assets are more likely to show a(n): Correct Ans ➡ High going-concern value.
Which of the following is inconsistent with a firm that sells for very near book value? Correct
Ans ➡ High future earning power
The main purpose of a market-value balance sheet is to: Correct Ans ➡ Value assets and liabilities without GAAP restrictions. A stock paying $5 in annual dividends sells now for $80 and has an expected return of 14%. What might investors expect to pay for the stock one year from now? Correct Ans ➡ $86.20
Which of the following statements is correct about a stock currently selling for $50 per share that
has a 16% expected return and a 10% expected capital appreciation? Correct Ans ➡ It is expected to pay $3 in annual dividends.
The expected return on a common stock is composed of: Correct Ans ➡ Both dividend yield and capital appreciation.
Firms having a higher expected return have a higher: Correct Ans ➡ Level of expected risk
How much should you pay for a share of stock that offers a constant growth rate of 10%, requires a 16% rate of return, and is expected to sell for $50 one year from now? Correct Ans ➡ $45.45
According to the dividend discount model, the current value of a stock is equal to the: Correct
Ans ➡ Present value of all expected future dividends.
How is it possible to ignore cash dividends that occur far into the future when using a dividend discount model? Those dividends: Correct Ans ➡ Have an insignificant present value.
If the dividend yield for year one is expected to be 5% based on the current price of $25, what will the year four dividend be if dividends grow at a constant 6%? Correct Ans ➡ $1.49
What is the expected dividend to be paid in three years if yesterday's dividend was $6.00, dividends are expected to grow at a constant 6% annual rate, and the firm has a 10% expected return? Correct Ans ➡ $7.15
The value of common stock will likely decrease if: Correct Ans ➡ The discount rate increases
When valuing stock with the dividend discount model, the present value of future dividends will:
Correct Ans ➡ Remain constant regardless of the time horizon selected.
Common stock can be valued using the perpetuity valuation formula if the: Correct Ans ➡ Dividends are not expected to grow
What should be the price for a common stock paying $3.50 annually in dividends if the growth rate is zero and the discount rate is 8%? Correct Ans ➡ $43.75
Dividing a stock's earnings per share by the expected rate of return will value the share correctly if no new shares are issued and the dividend yield: Correct Ans ➡ Is zero
If stock prices follow a random walk, which of the following statement(s) is(are) correct? Correct Ans ➡ A. Successive stock price changes are not related.
B. The history of stock prices cannot be used to predict future returns to investors.
C. Both A and B.
In the calculation of rates of return on common stock, dividends are _______ and capital gains are ______. Correct Ans ➡ Not guaranteed; not guaranteed
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? Correct Ans ➡ 10.0%
Which of the following values treats the firm as a going concern? Correct Ans ➡ Market value
If a stock's P/E ratio is 13.5 at a time when earnings are $3 per year, what is the stock's current price? Correct Ans ➡ $40.50
How many round lots were traded in a specific stock on a day in which 467,800 shares changed hands? Correct Ans ➡ 4,678 round lots
The book value of a firm's equity is determined by: Correct Ans ➡ The difference between
book values of assets and liabilities.
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? Correct Ans ➡ $40.00
If the liquidation value of a firm is negative, then: Correct Ans ➡ The firm's debt exceeds the market value of assets.
A firm's liquidation value is the amount: Correct Ans ➡ Realized from selling all assets and paying off its creditors.
Which of the following is least likely to account for an excess of market value over book value of equity? Correct Ans ➡ Inaccurate depreciation methods
Firms with valuable intangible assets are more likely to show a(n): Correct Ans ➡ High going-concern value.
Which of the following is inconsistent with a firm that sells for very near book value? Correct
Ans ➡ High future earning power
The main purpose of a market-value balance sheet is to: Correct Ans ➡ Value assets and liabilities without GAAP restrictions. A stock paying $5 in annual dividends sells now for $80 and has an expected return of 14%. What might investors expect to pay for the stock one year from now? Correct Ans ➡ $86.20
Which of the following statements is correct about a stock currently selling for $50 per share that
has a 16% expected return and a 10% expected capital appreciation? Correct Ans ➡ It is expected to pay $3 in annual dividends.
The expected return on a common stock is composed of: Correct Ans ➡ Both dividend yield and capital appreciation.
Firms having a higher expected return have a higher: Correct Ans ➡ Level of expected risk
How much should you pay for a share of stock that offers a constant growth rate of 10%, requires a 16% rate of return, and is expected to sell for $50 one year from now? Correct Ans ➡ $45.45
According to the dividend discount model, the current value of a stock is equal to the: Correct
Ans ➡ Present value of all expected future dividends.
How is it possible to ignore cash dividends that occur far into the future when using a dividend discount model? Those dividends: Correct Ans ➡ Have an insignificant present value.
If the dividend yield for year one is expected to be 5% based on the current price of $25, what will the year four dividend be if dividends grow at a constant 6%? Correct Ans ➡ $1.49
What is the expected dividend to be paid in three years if yesterday's dividend was $6.00, dividends are expected to grow at a constant 6% annual rate, and the firm has a 10% expected return? Correct Ans ➡ $7.15
The value of common stock will likely decrease if: Correct Ans ➡ The discount rate increases
When valuing stock with the dividend discount model, the present value of future dividends will:
Correct Ans ➡ Remain constant regardless of the time horizon selected.
Common stock can be valued using the perpetuity valuation formula if the: Correct Ans ➡ Dividends are not expected to grow
What should be the price for a common stock paying $3.50 annually in dividends if the growth rate is zero and the discount rate is 8%? Correct Ans ➡ $43.75
Dividing a stock's earnings per share by the expected rate of return will value the share correctly if no new shares are issued and the dividend yield: Correct Ans ➡ Is zero
