Study Guide 2 Exam
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This 2 page Study Guide was uploaded by Eric Mendelson on Friday June 3, 2016. The Study Guide belongs to fin 331 at Towson University taught by Dr Rugemere in Winter 2016. Since its upload, it has received 43 views. For similar materials see PRINCPLES FINANCIAL MANAGEMENT in Finance at Towson University.
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Date Created: 06/03/16
1. Miller Brothers Hardware paid an annual dividend of $0.95 per share last month. Today, the company announced that future dividends will be increasing by 2.6 percent annually. If you require a 13 percent rate of return, how much are you willing to pay to purchase one share of this stock today? $9.37 2. Show Boat Dinner Theatres has paid annual dividends of $0.32, $0.52 and $0.60 a share over the past three years, respectively. The company now predicts that it will maintain a constant dividend since its business has leveled off and sales are expected to remain relatively flat. Given the lack of future growth, you will only buy this stock if you can earn at least a 19 percent rate of return. What is the maximum you are willing to pay for one share of this stock today $3.16 3. Jen’s Fashions is growing quickly. Dividends are expected to grow at a 19 percent rate for next 3 years, with the growth rate falling off to a constant 8 percent thereafter. The required return is 12 percent and the company just paid a $3.80 annual dividend. What is the current share price? $131.11 4. Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately. If the dividend yield remains at its pre-announcement level, then you know the stock price: Decreased proportionately with the dividend decrease 5. The principle of diversification tells us that: Spreading an investment across many diverse assets will eliminate some of the total risk 6. The expected rate of return on a stock portfolio is a weighted average where the weights are based on the: Market value of the investment in each stock 7. What is the expected return on a portfolio that is equally weighted between stocks K and L given the following information? 11.13 percent 8. What is the beta of the following portfolio? Stock A,B,C i. Amount invested: $6,700, $3,000, $8,500 ii. Security Beta: 1.41, 1.23, 0.79 iii. 1.09 9. The risk-free rate of return is 3.9 percent and the market risk premium is 6.2 percent. What is the expected rate of return on a stock with a beta of 1.21? 11.40 percent 10.Given the expected returns and standard deviations on 2 stocks as follows: Stock A- 13% expected return, 9% standard deviation, Stock B- 12% expected return, 7% standard deviation, what is the coefficient of variation of the less risky stock? 0.69 11.Which one of the following statements is correct? The greater the volatility of returns, the greater the risk premium. 12.An increase in which of the following will increase the current value of a stock according to the dividend growth model? I, II, and IV only i. Dividend amount ii. Number of future dividends, provided the current number is less than infinite iii. Discount rate iv. Dividend growth rate 13.The All-Star Basic Value Fund’s portfolio is valued at $210 million. The fund has liabilities of $5 million, and the investment company sponsoring the fund has issued 16,400,000 shares. What is the fund’s net asset value? $12.50 14.Many financial planners recommend that investors pick a mutual fund with an expense ratio that is: 1 percent or less 15.Which one of the following funds would be considered the safest investment? Money market fund 16.Income dividends and capital gain distributions are: Subject to federal taxation 17.Tiffany Scott puts $10,000 into a load mutual fund. She knows that her up- front sales commission is 6%. How much of her money actually goes to buy shares in the mutual fund? $9,400 18.A preferred stock pays an annual dividend of $3.20. What is one share of this stock worth today if the rate of return is 11.75 percent? $27.23 19.The common stock of Textile Mills pays an annual dividend of $1.65 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return? $13.75 20.Jensen Shipping currently has an EPS of $5.29, a benchmark PE of 19.5 and an earnings growth of 4.3 percent. What is the target share price 4 years from now? $122.08
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