# Fin 819 Quiz

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Sample quiz 2: Fin 819 1. Super Computer Company's stock is selling for \$100 per share today. It is expected that this stock will pay a dividend of 5 dollars per share, and then be sold for \$120 per share at the end of one year. Calculate the expected rate of return for Super Computer Company ‘s stock. A) 20% B) 25% C) 10% D) 15% E) None of the above Answer: B Response: r = (120+5-100)/100 = 25% 2. PC Company stockholders expect to receive a year-end dividend of \$10 per share and then be sold for \$122 dollars per share. If the required rate of return for the stock is 20%, what is the current value of the stock? A) \$100 B) \$122 C) \$132 D) \$110 E) None of the above Answer: D Response: P = (122+10)/1.2 = 110 3. The constant dividend growth formula P0 = D1/(r-g) assumes: A) The dividends are growing at a constant rate g forever. B) r > g C) g is never negative. D) Both A and B E) None of the above Answer: D 4. Casino Co. is expected to pay a dividend of \$6 per share at the end of year one and these dividends are expected to grow at a constant rate of 8% per year forever. If the required rate of return on the stock is 20%, what is the current value of the stock today? A) \$30 B) \$50 C) \$100 D) \$54 E) None of the above Answer: B Response: P = (6/(0.2-0.08) = 50 5. WorldTour Co. has just now paid a dividend of \$6 per share (Do), the dividends are expected to grow at a constant rate of 5% per year forever. If the required rate of return on the stock is 15%, what is the current value on stock (after paying the dividend)? A) \$63 B) \$56 C) \$40 D) \$48 E) None of the above Answer: A Response: P = (6*1.05)/(0.15 0.05) = 63 6. The required rate of return or the market capitalization rate is estimated as follows: A) Dividend yield +