Frohlich
STOCK HOMEWORK SET
Finance 4504
Name__________________
1. A customer buys 100 shares of preferred at $80 per share. The par value is $100. The
dividend rate is 10%, with dividends paid semiannually. The customer will receive how much in
each dividend payment?
2. Which investment gives the highest after-tax return to a small corporate investor in the 50%
tax bracket?
a. 10% Corporate Bond
b. 10% Preferred Stock
c. 15% Corporate Bond
d. 5% Preferred Stock
3. ABC 10 % $100 par preferred is trading at $120 in the market. The current yield is:
4. The market price of common stock will be influenced by which of the following?
I
II
III
IV
The par value of the share
Expectations for future earnings of the company
Expectations for future dividends to be paid by the company
Book value of the company
a.
b.
c.
d.
I and IV
II and III
I, II, III
II and IV
5. ABC Corporation has declared a 5:4 stock spilt to shareholders of record on November 10th.
A stockholder of record with 100 shares will receive how many additional share?
6. Referring to the previous question, the price of the stock will be reduced on ex-date by:
7.
Assume Zero-Sum Enterprise pays an annual dividend of $1.40 per share and that neither
earnings nor dividends are expected to grow in the future. What is the value of ZeroSum's stock to an investor who requires a 14 percent rate of return?
8.
Assume that the dividend ($3.25) on Central Power Company's common stock issue is
paid annually at the end of the year. This dividend is not expected to increase for the
foreseeable future. Determine the value of this stock to an investor who requires a 12
percent rate of return.
9.
During the past 8 years, Wellington Company's common stock dividends have grown
from $2.00 to $3.19. Estimate the compound annual dividend growth rate over the 8 year
period.
10.
The stock of Music City is selling for $37.50 and pays a current annual dividend of
$1.10. What is the implied growth rate of dividends for this firm (assume dividends are
expected to grow at a constant rate) if an investor's required rate of return is 14 percent?
11.
Marko needs to raise capital through a zero-coupon bond debt offering.
If the bonds will have 12 years to maturity and the rate of return on
a bond in Marko's risk class is 11 percent, what will be the selling
price of the bond?
12.
A Dow Chemical bond carries a 9 percent coupon, pays interest
semiannually, and has 10 years to maturity. What is the bond's yield to
maturity if the bond is selling for $937.75?
13.
What is the required rate of return to the investor who is willing to
purchase a Duke Power preferred stock with a $8.70 dividend, a par
value of $100, and a current market price of $87?