(Use the following information for the next four questions)
Jones Steel Corporation has a dividend growth rate of 25% per year in recent Year,- The same growth rate is expected to last for another two years. After that the dividend growth rate drops to 6% forever. The current dividend is 52.00 per share, the reclwred rate of return for the stock is 149,
1. What is the firm's stock worth today?
a. $14.29
b. $31.25
c. $36.46
d. $39.06
2. What is the dividend yield if you hold the stock for one year?
a. 6%
b. 6.86%
c. 8%
d. 14%
3. What will be the stock's Dividend yield after its period of supernormal growth ends, i.e. when the dividend grows at the constant rate of 6% forever?
a. 6%
b. 8%
c. 14%
d. 25%
4. In the constant dividend growth model for stock, the expected stock return is the sum
a. capital gains yield and the dividend growth rate.
b. capital gains yield and dividend yield.
c. Current yield and the dividend growth rate.
d. Current yield and the dividend yield.
5. A three-year Treasury note with $1,000 maturity value$50 annual coupon. It currently sells for $956.42. What is the duration of this
a. 2.73 years
b. 2.86 years
c. 3 years
d. 3.24 years
e. 3.45 years
6. If the market price of a bond increases, then
a. the yield to maturity increases.
b. the yield to maturity decreases.
c. the coupon rate decreases.
d. both b and c.
7. The yield to maturity (YTM) on a bond is:
a. Below the coupon rate when the bond sells at a discount.
b. Above the coupon rate when the bond sells at a premium.
c. The discount rate that will set the present value of the cash flows equal to the bond price.
d. The current yield plus the average annual coupon rate.
8. Which bond would most likely possess the highest price risk when interest rate changes?
a. 8% coupon rate, 10 years to maturity
b. 8% coupon rate, 20 years to maturity
c. 10% coupon rate, 10 years to maturity
d. 10% coupon rate, 20 years to maturity
9. Which of the following bonds typically has the highest yield to maturity?
a. A 3-month T-bill
b. A 10-year T-note
c. A 10-year corporate bond with AA credit rating
d. A 10-year corporate bond with CCC credit rating
10. A 3-year zero-coupon bond is trading at $867.03 for $1,000 face value. What is the yield to maturity for this bond?
a. 3.26%
b. 0.00%
c. 4.87%
d. 5.56%
11. Consider the following two bonds. A 3-year bond issued by GE with a yield of 5.4% Is trading at par. A 3-year bond issues by the state of New Jersey has a yield of 4.3% and is also trading at par. Suppose your marginal tax rate is 25%. Which bond will you prefer to buy?
a. GE bond
b. NJ bond
c. You are indifferent between the two bonds
12. You are interested in a 5-year T-note with a quoted clean price of $1,134.54. The bond pays semi-annual coupons and the last coupon of $25 was paid 123 days ago. There are 183 days in this coupon period. Now much do you need to pay for the T-note?
a. $1131.54
b. $1151.34
c. $1159.54
d. $1184.54
13. What is the value of preferred stock that pays a constant and pre-determined dividend of $2.10 at the end of each year forever and has a required rate of return of 11% per year? (Round your answer to the nearest $1.)
a. $19
b. $17
c. $23
d. $21
14. Reading Enterprise preferred stock sells at $23.53 and has a beta of 1.25. If the risk free rate is 4% and the market risk premium is 7%, how much is Reading Enterprise's annual preferred stock dividend?
a. $1.82
b. $2.06
c. $2.59
d. $3.00
15. Suppose you just purchased a share of stock for $32.50. The next annual dividend is expected to be $1.925 and is expected to grow at an annual rate of 10% indefinitely. What is your expected return on the stock?
a. 11.59%
b. 15.38%
c. 15.92%
d. 17.51%
16. You are researching a technology stock that currently does not pay a divrdend but is expected to pay its first annual dividend of $10 in five years The dividend is expected to grow at 4% per year thereafter and the stock has a discount rate of 10, What ts the value of the stock today?
a. $68.30
b. $113.84
c. $166.67
d. The stock has no value because it does not pay a dividend today
17. Java Hut's Stock price is equal to the present value of future cash flows. Dividends are expected to grow at 4% per year forever. The expected return on the Java Hut stock is 15%. The current stock price is $31. Java Hut's next annual dividend is:
a. $5.89
b. $3.41
c. $4.65
d. $1.24
18. You are considering the purchase of a stock that just paid an annual dividend of $1.00. Dividends are expected to grow at the rate of 20% per year for the next two years and then they are expected to have a constant growth rate of 10% forever. If you require a 14% rate of return, how much should you be willing to pay for this stock?
a. $36.30
b. $32.63
c. $42.98
d. $29.86
19. McNeil Industries just paid an annual dividend of $2.10 per share. The dividend is expected to grow at a rate of 5% per year forever. If the current market price for a share of McNeil is $38.62, what is the expected rate of return on McNeil Stock?
a. 6.00%
b. 10.44%
c. 10.71%
d. 11.00%
20. Frontline has an annual EPS (earnings per share) of $2.5. The stock has a beta f 2.2 and ar expected return of 21%. Other companies in the same industry has an average P/E ratic of 7.0. What is the value of Frontline stock?
a. $11.90
b. $15.35
c. $17.50
d. $22.14
21. According to the semi-strong form of market efficiency, which of the foil( information is NOT incorporated in stock prices?
a. Apple's last reported quarterly earnings
b. Average return of Google's stock over the last ten years
c. Private information about a new technology only known to Facebook CEO
d. U.S. Federal Reserve's stated interest rate policy published yesterday.