Chapter Eight Valuation of Common S

Chapter Eight Valuation of Common StocksThis chapter contains 47 multiple choice questions, 17 short problems, and 9 longer problems.Multiple Choice1. In a quote listing of stocks, the ________ is defined as the annualized dollar dividend divided by the stock’s price, and is usually expressed as a percentage.(a) cash dividend(b) dividend payout(c) dividend coverage(d) dividend yieldAnswer: (d)2. According to the discounted-dividend model, the price of a share of stock is the ________ value of all expected ________ dividends per share, discounted at the market capitalization rate. (a) present; current(b) present; future(c) future; future(d) future; currentAnswer: (b)3. The value of common stock is determined by which of the following expected cash flows?(a) dividends and interest payments(b) dividends and maturity value of stock(c) dividends and net cash flows from operations of the firm(d) interest payments and maturity valueAnswer: (c) 4. The ________ is the expected rate of return that investors require in order to be willing to invest in the stock.(a) market capitalization rate(b) risk-adjusted discount rate(c) cost of debt(d) a and bAnswer: (d)5. The ________ of dividends is the most basic assumption underlying the discounted dividend model.(a) industry average(b) non-constant growth(c) constant growth(d) variabilityAnswer: (c)6. BHM stock is expected to pay a dividend of $2.50 a year from now, and its dividends are expected to grow by 6% per year thereafter. What is the price of a BHM share if the market capitalization rate is 7% per year?(a) $250.00(b) $192.31(c) $25.00(d) $19.23Answer: (c)7. IOU stock is expected to pay a dividend of $1.67 a year from now, and its dividends are not expected to grow in the foreseeable future. If the market capitalization rate is 7%, what is the current price of a share of IOU stock?(a) $11.69(b) $23.86(c) $116.90(d) $238.60Answer: (b)