Wk 1 Practice Ch. 7, Valuing Stocks

A  the value of the firm if it was closed and its assets liquidated

B  the stock price at the start of the year in which constant dividend growth begins

C  the highest dividend paid by the firm

D  the present value of the firm’s stock price at the end of the non-constant growth period

A  constant growth stock

B  annuity

C  long-term bond

D  perpetuity

A  r = (DIV1/P0) + g

B  r = DIV1 + P0/g

C  r = DIV1/P0

D  r = g

A  ROA

B  price/earnings ratio

C  ROE

D  dividend yield

A  the present value of all forecasted future dividends paid by the stock

B  the present value of the firm’s forecasted PE ratio

C  the present value of next year’s dividend to be paid by the stock

D  the present value of the future sale price of the stock

A  It is based on the recent historical returns of the stock.
It is the price that should be observed in a well-functioning stock market.

B  It is the present value of the cash payoffs anticipated by the investor who buys the stock.
It is the price that should be observed in a well-functioning stock market.

C  It is the present value of the cash payoffs anticipated by the investor who buys the stock.
It is a theoretical value that is never actually observed in practice.

D  It is based on the recent historical returns of the stock.
It is a theoretical value that is never actually observed in practice.

A  non-constant growth model

B  no-growth model

C  organic growth model

D  constant growth model

A  dividend yield + growth rate

B  dividend yield − growth rate

C  dividend yield × growth rate

D  dividend yield/growth rate

A  True

B  False

A  A firm’s market value can be estimated by multiplying its earnings per share by the P/E ratio for a similar firm.
A firm’s market value can be estimated by finding the share price of a similar firm and using that value

B  A firm’s market value can be estimated by multiplying its earnings per share by the P/E ratio for a similar firm.
A firm’s market value can be estimated by multiplying its book value by the market/book ratio for a similar firm.

C  A firm’s market value can be estimated by using the share price of any similar-sized firm.
A firm’s market value can be estimated by finding the share price of a similar firm and using that value

D  A firm’s market value can be estimated by using the share price of any similar-sized firm.
A firm’s market value can be estimated by multiplying its book value by the market/book ratio for a similar firm.

A  future dividends; risk; current share price

B  future dividends; risk; required return

C  current dividends; risk; future dividends

D  future dividends; risk; current dividends

A  equity

B  dividend

C  book value

D  intrinsic value