Q6 - Stocks

What is the assumption for using the Gordon growth model?

• Required return on equity is less than the growth rate

• Dividends are expected to decrease

• Growth rate is greater than the required return on equity

• Dividends are not expected to grow

What does a high PE ratio indicate?

• Market expects earnings to decrease

• Market feels the firm's earnings are high risk

• Market feels the firm's earnings are low risk

• Market expects earnings to rise in the future

What is the main implication of the generalized dividend valuation model?

• Stock price is determined by the current market demand

• Stock price is determined by the present value of dividends and nothing else matters

• Stock price is determined by the company's assets

• Stock price is determined by the future sales price

What is the expected constant growth rate in the Gordon growth model?

• Greater than the required return on equity

• Less than the required return on equity

• Not related to the required return on equity

• Equal to the required return on equity

What is the value of a firm's stock using the PE ratio approach?

• PE ratio added to expected earnings

• PE ratio multiplied by expected earnings

• PE ratio divided by expected earnings

• PE ratio subtracted from expected earnings