#### Description of this paper

##### assignment 7

**Description**

solution

**Question**

HOMEWORK ? CHAPTER 7;PLEASE ANSWER QUESTIONS WITH AN EXPLANATION OF WHY A CERTAIN ANSWER IS CORRECT;1. Companies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT?;a. All common stocks fall into one of three classes: A, B, and C.;b. All common stocks, regardless of class, must have the same voting rights.;c. All firms have several classes of common stock.;d. All common stock, regardless of class, must pay the same dividend.;e. Some class or classes of common stock are entitled to more votes per share than other classes.;2. Which of the following statements is CORRECT?;a. The constant growth model takes into consideration the capital gains investors expect to earn on a stock.;b. Two firms with the same expected dividend and growth rates must also have the same stock price.;c. It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant.;d. If a stock has a required rate of return rs = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stock?s dividend yield is also 5%.;e. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.;3. A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?;a. The company?s current stock price is $20.;b. The company?s dividend yield 5 years from now is expected to be 10%.;c. The constant growth model cannot be used because the growth rate is negative.;d. The company?s expected capital gains yield is 5%.;e. The company?s expected stock price at the beginning of next year is $9.50.;4. If a stock?s dividend is expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.;a. The expected return on the stock is 5% a year.;b. The stock?s dividend yield is 5%.;c. The price of the stock is expected to decline in the future.;d. The stock?s required return must be equal to or less than 5%.;e. The stock?s price one year from now is expected to be 5% above the current price.;5. Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?;Stock;A;B;Required Return;10%;12%;Market Price;$25;$40;Expected Growth;7%;9%;a. These two stocks should have the same price.;b. These two stocks must have the same dividend yield.;c. These two stocks should have the same expected return.;d. These two stocks must have the same expected capital gains yield.;e. These two stocks must have the same expected year-end dividend.;6. Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?;Stock;X;Y;Price;$30;$30;Expected growth (constant);6%;4%;Required Return;12%;10%;a. Stock X has a higher dividend yield than Stock Y.;b. Stock Y has a higher dividend yield than Stock X.;c. One year from now, Stock X?s price is expected to be higher than Stock Y?s price.;d. Stock X has the higher expected year-end dividend.;e. Stock Y has a higher capital gains yield.;7. Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT?;a. The two stocks must have the same dividend per share;b. If one stock has a higher dividend yield, it must also have a lower dividend growth rate.;c. If one stock has a higher dividend yield, it must also have a higher dividend growth rate.;d. The two stocks must have the same dividend growth rate.;e. The two stocks must have the same dividend yield.;8. Schnusenberg Corporation just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?;a. $14.52;b. $14.89;c. $15.26;d. $15.64;e. $16.03;9. Nachman Industries just paid a dividend of D0 = $1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock?s current market value?;a. $41.59;b. $42.65;c. $43.75;d. $44.87;e. $45.99;10. Ackert Company's last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%. What is the best estimate of the current stock price?;a. $37.05;b. $38.16;c. $39.30;d. $40.48;e. $41.70;Attachments;Assignment_7_docx.docx (21.06 KB)

Paper#35760 | Written in 18-Jul-2015

Price :*$31*