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Using the Gordon growth model, a stock's price increases if ________________.

• the dividend growth rate falls

• the dividend growth rate increases

• the required rate of return on equity rises

• the expected sales price rises

SanData Inc. recently paid its annual dividend of $3. Dividends have consistently grown at a rate of 3%. You estimate that the stock has a required return of 17%. What is the intrinsic value of this stock?

• $18.18

• $21.43

• $22.07

• $25.07

Which of the following is true about preferred stock?

• Preferred stockholders are paid after common stockholders receive dividends.

• Preferred shares have a lower dividend yield than common stockholders or bondholders usually receive

• Preferred shares have a greater claim on being repaid than shares of common stock if a company goes bankrupt.

• All of the above

Investors are willing to purchase stocks having high P/E ratios because:

• they expect these shares to sell for a lower price

• they expect these shares to offer higher dividend payments

• these shares are accompanied by guaranteed earnings

• they expect these shares to have greater growth opportunities

If a firm unexpectedly raises its dividend permanently and by a substantial amount, the firm's stock price:

• should rise, given dividend discount models

• should decline, given discounted cash flow analysis

• will remain constant, due to market efficiency

• remain constant, due to random-walk behavior

The valuation of a common stock today primarily depends on

• the number of shares outstanding and the number of its shareholders.

• its expected future dividends and its discount rate.

• Wall Street analysts.

• the price to earnings ratio.

CK Company stockholders expect to receive a year-end dividend of $5 per share and then immediately sell their shares for $115 dollars per share. If the required rate of return for the stock is 20 percent, what is the current value of the stock?

• $132

• $122

• $100

• $110

The value of a preferred stock equals the present value of its ________ dividend payments discounted at the required rate of return of the stock.

• past

• present

• future

• last

An analyst, using a number of models and a range of inputs, estimates a security’s value to be between ¥250 and ¥270. The security is trading at ¥265. The security appears to be:

• overvalued.

• undervalued.

• fairly valued.

• Not enough information

An investor expects a share to pay dividends of $3.00 and $3.15 at the end of Years 1 and 2, respectively. At the end of the second year, the investor expects the shares to trade at $40.00. The required rate of return on the shares is 8 percent. If the investor’s forecasts are accurate and the market price of the shares is currently $30, the most likely conclusion is that the shares are:

• overvalued.

• undervalued.

• fairly valued

• not enough information