FIN 303 Samples of Possible Exam Questions (for Chapter 9)
1.)
A company’s board of directors is primarily an agent of the
company’s:
a.
b.
c.
d.
e.
Chief Executive Officer (CEO)
employees
management
management and employees
shareholders
Correct answer: e.
2.)
A stock is expected to pay a dividend of $1 at the end of the year.
The required rate of return is rs = 11%, and the expected constant
growth rate is 5%. What is the stock’s value per share?
a.
b.
c.
d.
e.
$16.67
$18.83
$20.00
$21.67
$23.33
Correct answer: a.
3.)
Walker preferred stock pays annual dividend of $2 per share. If the
required return on this stock is currently 8%, what should be the
stock’s market value?
a.
b.
c.
d.
e.
$22.00
$23.00
$24.00
$25.00
$26.00
Correct answer: d.
4.)
Damon Enterprises' stock is currently sells for $25 per share. The
stock’s dividend is projected to increase at a constant rate of 7%
per year.
The required rate of return on the stock, rs, is 10%.
What is Damon's expected price 4 years from today?
a.
b.
c.
d.
e.
$30.21
$31.65
$32.77
$33.89
$34.45
Correct answer: c.
5.)
If D0 = $2.00 (just paid), g (which is constant) = 6%, and P0 = $40,
what is the stock’s expected total return for the coming year? (In
your calculation, include D1 is the total return, but not D0.)
a.
b.
c.
d.
e.
9.8%
10.3%
10.8%
11.3%
11.8%
Correct answer: d.
6.)
If D0 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the
stock’s expected dividend yield for the coming year?
a.
b.
c.
d.
e.
5.0%
5.1%
5.3%
5.6%
5.8%
Correct answer: c.
7.)
Columbia preferred stock pays annual dividend of $4 per share and
sells for $80 per share. What is the required return on this stock?
a.
b.
c.
d.
e.
3%
4%
5%
6%
8%
Correct answer: c.
8.)
Lomburg Gold Inc has dwindling resources. It is expected to pay an
annual dividend in one year (D1) of $0.50 per share. Its required
return is 8%.
Its growth is expected to decline at a constant
rate of 2% per year.
Given this constant expected negative
growth?
a.
b.
c.
d.
e.
$
$
$
$
$
5.00
7.00
6.67
7.60
8.33
Correct answer: a.