Financial Markets and Stocks: Quiz Questions, Exams of Finance

Download Financial Markets and Stocks: Quiz Questions and more Exams Finance in PDF only on Docsity! 1 Finance Exam Chapter 4 The Value of Common Stocks with Solutions 2024 1. The major secondary market for GE shares is: A. London Stock Exchange B. New York Stock Exchange C. Nasdaq D. none of the above 2. Assume General Electric (GE) has about 10.3 billion shares outstanding and the stock price is $37.10. Also assume the P/E ratio is about 18.3. Calculate the market capitalization for GE. (Approximately) A. $679 billion B. $188 billion C. $382 billion D. None of the above market capitalization = (10.3)(37.10) = $382.13 billion 3. The following are foreign companies that are traded on the New York Stock Exchange: I) Toyota, II) Brasil Telecom, III) Nokia, IV) Endesa, V) General Electric A. I, II and III only B. I,II, III and IV only C. I,II,III and V only D. All of the given companies are foreign companies 4. If the Volume is reported in 100s as 292,059 in the Wall Street Journal quotation, then the trading volume for that day of trading is: A. 292,059 shares B. 2,920,590 shares C. 29,205,900 shares D. 292,059,000 shares Trading volume = 292059 * 100 = 29,205,900 5. The dividend yield reported as Yld. % in The Wall Street Journal quotation is calculated as follows: A. (dividends/hi) B. (dividends/lo) C. (dividends/close) D. None of the above 2 6. The Wall Street Journal quotation for a company has the following values: Div: $1.12, PE: 18.3, Close: $37.22. Calculate the dividend pay out ratio for the company (Approximately). A. 18% B. 55% C. 45% D. None of the above EPS = (37.22)/18.3 = 2.03; dividend payout = 1.12/2.03 = 0.55 = 55% 7. If the Wall Street Journal Quotation for a company has the following values close: 55.14; Net chg: = + 1.04; then the closing price for the stock for the previous trading day was? A. $56.18 B. $54.10 C. $55.66 D. None of the above. Previous closing = today's closing net chg. = 55.14 - 1.04 = $54.10 8. The exchange-traded fund (EFT) that tracks the Nasdaq 100 index is called: A. SPDR B. DIAMONDS C. QQQQ D. None of the above 9. The following are auction markets except: A. New York Stock Exchange B. London Stock Exchange C. Tokyo Stock Exchange D. Nasdaq 10. The following is an example of a dealer market: A. New York Stock Exchange B. London Stock Exchange C. Tokyo Stock Exchange D. Nasdaq 11. In which of the following stock exchange specialists act as the auctioneers: A. New York Stock Exchange B. London Stock Exchange 5 21. The expected rate of return or the cost of equity capital is estimated as follows: A. Dividend yield - expected rate of growth in dividends B. Dividend yield + expected rate of growth in dividends C. Dividend yield/expected rate of growth in dividends D. (Dividend yield) * (expected rate of growth in dividends) 22. Dividend growth rate for a stable firm can be estimated as: A. Plow back rate/the return on equity (ROE) B. Plow back rate * the return on equity (ROE) C. Plow back rate + the return on equity (ROE) D. Plow back rate - the return on equity (ROE) 23. MJ Co. pays out 60% of its earnings as dividends. Its return on equity is 15%. What is the stable dividend growth rate for the firm? A. 9% B. 5% C. 6% D. 15% g = (1 - 0.60) * 15 = 6% Type: Difficult 24. Michigan Co. is currently paying a dividend of $2.00 per share. The dividends are expected to grow at 20% per year for the next four years and then grow 6% per year thereafter. Calculate the expected dividend in year 5. A. $4.15 B. $2.95 C. $4.40 D. $3.81 Div 5 = (2.0) * (1.20^4) * (1.06) = 4.40 25. Otobai Motor Company is currently paying a dividend of $1.40 per year. The dividends are expected to grow at a rate of 18% for the next three years and then a constant rate of 5% thereafter. What is the expected dividend per share in year 5? A. $2.35 B. $2.54 C. $2.91 D. $1.50 D5 = (1.4) * (1.18^3) * (1.05^2) = 2.54 6 26. The In-Tech Co. has just paid a dividend of $1 per share. The dividends are expected to grow at 25% per year for the next three years and at the rate of 5% per year thereafter. If the required rate of return on the stock is 18%(APR), what is the current value of the stock? A. $12.97 B. $11.93 C. $15.20 D. None of the above P = (1.25/1.18) + (1.5625/1.18^2) + (1.9531/1.18^3) + (2.0508/((1.18^3) * (0.18 - 0.05)) = 12.97 27. R&D Technology Corporation has just paid a dividend of $0.50 per share. The dividends are expected to grow at 24% per year for the next two years and at 8% per year thereafter. If the required rate of return in the stock is 16% (APR), calculate the current value of the stock. A. $1.11 B. $7.71 C. $8.82 D. None of the above Po = [(0.5 * 1.24)/1.16] + [(0.5 * 1.24^2)/(1.16^2)] + [(0.5 * 1.24^2 * 1.08)/((1.16^2 * (0.16 - 0.08))] = $8.82 28. Ocean Co. has paid a dividend $2 per share out of earnings of $4 per share. If the book value per share is $25, what is the expected growth rate in dividends (g)? A. 16% B. 12% C. 8% D. 4% Payout ratio = 50%; Plowback ratio = 50%; g = (1 - 0.5) (4/25) = 0.08 or 8% 29. Seven-Seas Co. has paid a dividend $3 per share out of earnings of $5 per share. If the book value per share is $40 and the market price is 52.50 per share, calculate the required rate of return on the stock. A. 12% B. 11% C. 5% D. 6% g = (1 - 0.6) (5/40) = .05 or 5%; r = [(3 * 1.05)/52.50] + 0.05 = 0.11 = 11%. 7 30. River Co. has paid a dividend $2 per share out of earnings of $4 per share. If the book value per share is $25 and is currently selling for $40 per share, calculate the required rate of return on the stock. A. 15.2% B. 7.2% C. 14.7% D. 13.4% g = (1 - 0.5)(4/25) = 0.08 or 8%; r = [(2 * 1.08)/40] + 0.08 = 13.4%. 31. Lake Co. has paid a dividend $3 per share out of earnings of $5 per share. If the book value per share is $40, what is the expected growth rate in dividends? A. 7.5% B. 8% C. 12.5% D. 5% g = (1 - 3/5)(5/40) = .05 or 5%. 32. The growth rate in dividends is a function of two ratios. They are: A. ROA and ROE. B. Dividend yield and growth rate in dividends. C. ROE and the Retention Ratio. D. Book value per share and EPS. 33. Company X has a P/E ratio of 10 and a stock price of $50 per share. Calculate earnings per share of the company. A. $6 per share B. $10 per share C. $0.20 per share D. $5 per share EPS = 50/10 = $5 Type: Medium 34. Which of the following formulas regarding earnings to price ratio is true: A. EPS/Po = r[1 + (PVGO/Po] B. EPS/Po = r[1 - (PVGO/Po)] C. EPS/Po = [r + (PVGO/Po)] D. EPS/Po = [r + (1 + (PVGO/Po)]/r 10 45. A company forecasts growth of 6% for 5 years and 3% thereafter. Given last year's cash flow was $100, what is the horizon value if the company cost of capital is 8%? A. $0 B. $1,672 C. $2,000 D. $2,676 The future value at 5 years of 100 is 133.82. The horizon value = 133.82/(.08 - .03) 11 Finance Exam Chapter 4 The Value of Common Stocks with Solutions 2024