©JUSTTRACY EXAM SOLUTIONS
19/11/2024 2:50pm
Keen Finance Chapter 7 Exam
Questions And Improved Responses
The efficient markets hypothesis has three forms that are based on the level of information
reflected in an asset's price. The form that states the price of an asset reflects all information
contained in past prices is the: - answers✔✔weak-form of market efficiency.
According to the constant growth dividend model, which of the following would cause a
stock price to fall? - answers✔✔A decrease in the growth rate of the dividend
The efficient markets hypothesis has three forms that are based on the level of information
reflected in an asset's price. The form that states the price of an asset reflects all information
contained in past prices and all other public information is the: - answers✔✔semi-strong-
form of market efficiency
According to the constant growth dividend model, which of the following would cause a
stock price to rise? - answers✔✔an increase in the growth rate of the dividend
One of the assumptions of the constant growth valuation model is that the growth rate is: -
answers✔✔less than the required return.
The efficient markets hypothesis has three forms that are based on the level of information
reflected in an asset's price. The form that states the price of an asset reflects all information
contained in past prices, all other public information, and all private information is the: -
answers✔✔strong-form of market efficiency
What is the value of a stock if the current dividend is $2, the growth rate is 5%, and the
required return is 10%? - answers✔✔$42
- Price0=(Div1)/(r-g)
Price0=current value of common stock
Div1=Dividend expected in year 1
r=required return on common stock
, ©JUSTTRACY EXAM SOLUTIONS
19/11/2024 2:50pm
g=constang growth rate in dividens
Seidel Inc. is expected to pay a dividend next year of $1.53. You also expect Seidel to
increase its dividend payout by 4% per year. If you require a 12% return to invest in Seidel
what is the maximum price you would be willing to pay for the stock? - answers✔✔$19.13
-Price0=(Div1)/(r-g)
What is the value of a stock that you believe will sell in three years for $67 a share and will
pay $3.00 in dividends next year, and grow dividends at 4% in year 2, and 5% in year 3
assuming your required return is 15%? - answers✔✔$51.18
-Selling price in year 3 = $67
Dividend in year 1 = $3.00
Dividend in year 2 = $3.00(1.04) = $3.12
Dividend in year 3 = $3.12(1.05) = $3.28
Price0=($3)/(1.15)^1+(3.12)/(1.15)^2+(3.28)/(1.15)^3+(67)/(1.15)^3
The efficient markets hypothesis implies that: - answers✔✔stocks will be fairly priced
according to all available information.
If the market is strong-form efficient, which of the following could be used to beat the
market? - answers✔✔No source of information
Gordon's growth model, also called the constant growth model, assumes that the present
value of a stock's __________ determines the value of the stock. - answers✔✔Dividens
A __________ is a feature that gives common shareholders the option of maintaining their
fraction of ownership in the firm. - answers✔✔Preemptive Right
19/11/2024 2:50pm
Keen Finance Chapter 7 Exam
Questions And Improved Responses
The efficient markets hypothesis has three forms that are based on the level of information
reflected in an asset's price. The form that states the price of an asset reflects all information
contained in past prices is the: - answers✔✔weak-form of market efficiency.
According to the constant growth dividend model, which of the following would cause a
stock price to fall? - answers✔✔A decrease in the growth rate of the dividend
The efficient markets hypothesis has three forms that are based on the level of information
reflected in an asset's price. The form that states the price of an asset reflects all information
contained in past prices and all other public information is the: - answers✔✔semi-strong-
form of market efficiency
According to the constant growth dividend model, which of the following would cause a
stock price to rise? - answers✔✔an increase in the growth rate of the dividend
One of the assumptions of the constant growth valuation model is that the growth rate is: -
answers✔✔less than the required return.
The efficient markets hypothesis has three forms that are based on the level of information
reflected in an asset's price. The form that states the price of an asset reflects all information
contained in past prices, all other public information, and all private information is the: -
answers✔✔strong-form of market efficiency
What is the value of a stock if the current dividend is $2, the growth rate is 5%, and the
required return is 10%? - answers✔✔$42
- Price0=(Div1)/(r-g)
Price0=current value of common stock
Div1=Dividend expected in year 1
r=required return on common stock
, ©JUSTTRACY EXAM SOLUTIONS
19/11/2024 2:50pm
g=constang growth rate in dividens
Seidel Inc. is expected to pay a dividend next year of $1.53. You also expect Seidel to
increase its dividend payout by 4% per year. If you require a 12% return to invest in Seidel
what is the maximum price you would be willing to pay for the stock? - answers✔✔$19.13
-Price0=(Div1)/(r-g)
What is the value of a stock that you believe will sell in three years for $67 a share and will
pay $3.00 in dividends next year, and grow dividends at 4% in year 2, and 5% in year 3
assuming your required return is 15%? - answers✔✔$51.18
-Selling price in year 3 = $67
Dividend in year 1 = $3.00
Dividend in year 2 = $3.00(1.04) = $3.12
Dividend in year 3 = $3.12(1.05) = $3.28
Price0=($3)/(1.15)^1+(3.12)/(1.15)^2+(3.28)/(1.15)^3+(67)/(1.15)^3
The efficient markets hypothesis implies that: - answers✔✔stocks will be fairly priced
according to all available information.
If the market is strong-form efficient, which of the following could be used to beat the
market? - answers✔✔No source of information
Gordon's growth model, also called the constant growth model, assumes that the present
value of a stock's __________ determines the value of the stock. - answers✔✔Dividens
A __________ is a feature that gives common shareholders the option of maintaining their
fraction of ownership in the firm. - answers✔✔Preemptive Right
