Question: MBA 570 QUIZ #3 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. A stock is expected to
MBA 570
QUIZ #3
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1. A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 12.5%, and the expected constant growth rate is g = 8.5%. What is the current stock price?
| a. | $17.82 |
| b. | $18.28 |
| c. | $18.75 |
| d. | $19.22 |
| e. | $19.70 |
____ 2. A stock just paid a dividend of D0 = $1.75. The required rate of return is rs = 12.0%, and the constant growth rate is g = 4.0%. What is the current stock price?
| a. | $20.56 |
| b. | $21.09 |
| c. | $21.63 |
| d. | $22.18 |
| e. | $22.75 |
____ 3. Ewert Enterprises' stock currently sells for $30.50 per share. The stock's dividend is projected to increase at a constant rate of 4.50% per year. The required rate of return on the stock, rs, is 10.00%. What is Ewert's expected price 3 years from today?
| a. | $31.61 |
| b. | $32.43 |
| c. | $33.26 |
| d. | $34.11 |
| e. | $34.81 |
____ 4. Gary Wells Inc. plans to issue perpetual preferred stock with an annual dividend of $6.50 per share. If the required return on this preferred stock is 6.5%, at what price should the stock sell?
| a. | $90.37 |
| b. | $92.69 |
| c. | $95.06 |
| d. | $97.50 |
| e. | $100.00 |
____ 5. Assume that you are a consultant to Magee Inc., and you have been provided with the following data: rRF = 4.00%; Market Risk Premium = 5.00%; and = 1.15. What is the firms required return based on the CAPM?
| a. | 9.75% |
| b. | 10.04% |
| c. | 10.34% |
| d. | 10.65% |
| e. | 10.97% |
____ 6. Currently, the risk-free rate is 6% and the market risk premium is 5%. Given this information, which of the following statements is CORRECT?
| a. | An index fund with beta = 1.0 should have a required return of 11%. |
| b. | If a stock has a negative beta, its required return must also be negative. |
| c. | An index fund with beta = 1.0 should have a required return less than 11%. |
| d. | If a stock's beta doubles, its required return must also double. |
| e. | An index fund with beta = 1.0 should have a required return greater than 11%. |
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____ 7. Ritter Company's stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is Ritter's required rate of return?
| a. | 11.36% |
| b. | 11.65% |
| c. | 11.95% |
| d. | 12.25% |
| e. | 12.55% |
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