TRUE OR FALSE

5. Using the P/E ratio to value stocks falls under the heading of relative valuation.

O O 6. If the payout ratio is 50%, the required rate is 10% and the growth rate is 5%, the P/E ratio > 10%.

O O 7. If the current dividend (D₀) is $2 and g is 5%, D₁ = $2.05.

O O 8. Historic multiples are recommended when companies

mature and growth rates slow.

O O 9. If a preferred stock paid a $4 dividend and has a required

return of 16%, its value > $24.

O O 10. If a common stock paid dividends of $3 annually for 3

years, would sell for $60 after those 3 years and was required to return 13%, its value < $50.