Finf15-Wk4-Self Quiz

FINF15-WK4-2013-Self-Quiz

1. A stock expects to pay a year-end dividend of $2 a share (i.e., D1 = $2; assume that last year's dividend has already been paid). The dividend is expected to fall 5% a year forever (i.e., g = -5%). The company's expected and required rate of return is 15%. Which of the following statements is most correct? (Points : 6)

A. The company's stock price is $10.

B. The company's expected dividend yield 5 years from now will be 20%.

C. The company's stock price 5 years from now is expected to be $7.74.

D. Both answers B and C are correct.

E. All of the above answers are correct.

2. Which of the following statements is most correct? (Points : 6)

A. If a stock's beta increased but its growth rate remained the same, then the new equilibrium price of the stock will be higher (assuming dividends continue to grow at the constant growth rate).

B. Market efficiency says that the actual realized returns on all stocks will be equal to the expected rates of return.

C. An implication of the semistrong form of the efficient markets hypothesis is that you cannot consistently benefit from trading on information reported in the Wall Street Journal.

D. Statements A and B are correct.

E. All of the statements above are correct.

3. Which of the following statements is most correct? (Points : 6)

A. If the stock market is weak-form efficient, this means you cannot use private information to outperform the market.

B. If the stock market is semistrong-form efficient, this means the expected return on stocks and bonds should be the same.

C. If the stock market is semistrong-form efficient, this means that high beta stocks should have the same expected return as low beta stocks.

D. Statements B and C are correct.

E. None of the statements above are correct.

4. Which of the following statements is most correct? (Points : 6)

The CAPM approach to estimating a firm's cost of common stock never gives a better estimate...