1. An investor expects a share to pay dividends of $3.00 and $3.15 at the end of Years 1 and 2, respectively. At the end of the second year, the investor expects the shares to trade at $40.00. The required rate of return on the shares is 8 percent. If the investor’s forecasts are accurate and the market price of the shares is currently $30, the most likely conclusion is that the shares are:

A. Overvalued.

B. Undervalued.

C. Fairly valued.

2. Two investors with different holding periods but the same expectations and required rate of return for a company are estimating the intrinsic value of a common share of the company. The investor with the shorter holding period will most likely estimate a:
A. Lower intrinsic value.
B. Higher intrinsic value.
C. Similar intrinsic value.
3. An equity valuation model that focuses on expected dividends rather than the capacity to pay dividends is the A. Dividend discount model.
B. Free-cash-flow-to-equity model.
C. Cash flow return on investment model.