FIN 304 Fall 24 - Quiz #3 (10/8)

Hardy Lumber's capital structure includes bonds, preferred stock, and common stock. Which of the following rights has most likely been granted to the preferred shareholders?

I. right to share in company profits prior to other shareholders

II. right to elect the corporate directors

III. right to vote on proposed mergers

IV. right to all residual income after the common dividends have been paid

• I only
• I and III only
• I and IV only
• II, III, and IV only
• I, II, III, and IV

Three Corners Markets just paid an annual dividend of $1.40 a share. Today, the company announced that future dividends will be increasing by 1.5 percent annually. If you require a return of 15 percent, how much are you willing to pay to purchase one share of this stock today?

• $11.23
• $10.53
• $10.68
• $9.68
• $11.57

If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be:

• upward sloping.
• flat.
• humped.
• downward sloping.
• double-humped.

The term structure of interest rates is primarily based on which three of the following?

I. Interest rate risk premium

II. Real rate of interest

III. Default risk premium

IV. Inflation premium

V. Liquidity premium

• I and V
• I, III, and V
• III and IV
• I and IV
• IV and V

When valuing a stock using the constant-growth model, D1 represents the:

• expected difference in the stock price over the next year.
• expected stock price in one year.
• last annual dividend paid.
• next expected annual dividend.
• discount rate.