FIN4501 Game Show 2

A common stock pays an annual dividend per share of $2.10. The risk free rate is 7% and the risk premium for this stock is 4%. If the annual dividend is expected to remain at $2.10, the value of the stock is closest to:

• 19.09

• 30.0

• 52.50

• 70.00

Which of the following assumptions does the constant growth dividend discount model require?

I. Dividends grow at a constant rate

II. The dividend growth rate continues indefinitely

III. The required rate of return is less than the dividend growth rate

• I only

• III only

• I and II only

• I, II and III

What month of the year, on average, has had the highest stock market returns as measured by a small-stock portfolio?

• January

• March

• June

• December

Assume the market is weak form efficient. If this is true, technical analysts___earn abnormal returns and fundamental analysts____earn abnormal returns

• Could; could

• Could; could not

• Could not; Could not

• Could not; could

Which of the following is least likely to be of interest to a technical analyst?

• A 15 day moving average of trading volume

• A relative strength analysis of stock price momentum

• Company earnings and cash flow growth

• A daily history of the ratio of advancing stocks over declining stocks

When someone who wins money is more willing to lose the gains, this is referred to as:

• Representativeness

• The house money effect

• Frame independence

• A heuristic

According to the CAPM, what is the rate of return of a portfolio with a beta of 1?

• Between R_M and R_f

• The risk free rate R_f

• Beta x (R_M - R_f)

• The return on the market, R_M

Which type of risk is essentially eliminated by diversification?

• Perceived risk

• Market risk

• Systematic risk

• Unsystematic risk