1. The preferred stock of the Limbaugh Institute pays a constant annual dividend of $4 and sells for $50. You believe the stock will sell for $32 in one year. You must, therefore, believe that the required return on the stock will be _____ percentage points ________ in one year.
A) 8; higher
B) 8; lower
C) 1.5; higher
D) 2.5; lower
E) 4.5; higher
2. A firm's stock has a required return of 12%. The stock's dividend yield is 5%. What is the dividend the firm is expected to pay in one year if the current stock price is $50?
A) $2.00
B) $2.50
C) $3.00
D) $3.50
E) $4.00
3. A firm's stock has a required return of 12%. The stock's dividend yield is 5%. What dividend did the firm just pay if the current stock price is $50?
A) $2.18
B) $2.34
C) $2.50
D) $2.87
E) $3.60
4. The difference between the market value of an investment and its cost is the:
A) Net present value.
B) Internal rate of return.
C) Payback period.
D) Profitability index.
E) Discounted payback period.
5. The net present value (NPV) rule can be best stated as:
A) An investment should be accepted if, and only if, the NPV is exactly equal to zero.
B) An investment should be rejected if the NPV is positive and accepted if it is negative.
C) An investment should be accepted if the NPV is positive and rejected if its is negative.
D) An investment with greater cash inflows than cash outflows, regardless of when the cash flows occur, will always have a positive NPV and therefore should always be accepted.