1. You would use the dividend growth model (DGM) method to determine the value of a stock
a. for a stock that does not pay dividends.
b. with an unusual or non-constant growth pattern
c. when the growth rate of the stock is greater than the rate expected in the marketplace.
d. with the same dividend every time.
e. with a very stable, nominal growth pattern.
2. A certain investment has an APR of 7% and an EAR of 7%. From this information we know that:
a. One of the rates must be incorrect.
b. The investment actually earns 7.2%
c. This is not a good investment for several reasons.
d. The investment compounds quarterly.
e. The investment compounds annually.
3. A grandmother would like to start a savings account for her grandchild when it is born and deposit $1,000, but then add no more to the account and let it earn interest at 5% until the child is 21. To find out how much will be in the account when the grandchild turns 21, you would do a
a. multiple payment time value of money computation for future value.
b. single payment time value of money computation for future value.
c. multiple payment time value of money computation for present value.
d. single payment time value of money computation for present value.
e. None of the above will get to the value of the account after 21 years.