Reading 60: An Introduction to Security Valuation: Part II growth, annual, expected, discount, class

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26.If a stock sells for $50 that has an expected annual dividend of $2 and has a sustainable growth rate of 5%, what is the market discount rate for this stock?

A)   7.5%.

B)   9.0%.

C)   10.0%.

D)   12.0%.

27.Assuming the risk-free rate is 5% and the expected return on the market is 12%, what is the value of a stock with a beta of 1.5 that paid a $2 dividend last year if dividends are expected to grow at a 5% rate forever?

A)   $12.50.

B)   $17.50.

C)   $10.00.

D)   $20.00.

28.What is the value of a stock that paid a $0.25 dividend last year, if dividends are expected to grow at a rate of 6 percent forever? Assume that the risk-free rate is 5 percent, the expected return on the market is 10 percent, and the stock's beta is 0.5.

A)   $3.53.

B)   $17.67.

C)   $6.63.

D)   $16.67.

29.Which of the following is a shortcoming(s) of the constant growth dividend discount model?

A)   Firms with temporary high-growth expectations have characteristics that are inconsistent with model.

B)   Small differences in key assumptions can produce widely varying values.

C)   All these choices are correct.

D)   Many rapid growth companies pay little or no dividends, and forecasting their future plans may be futile.

30.Use the following information and the dividend discount model to find the value of GoFlower, Inc.’s, common stock?

 Last year’s dividend was $3.10 per share.

 The growth rate in dividends is estimated to be 10 percent forever.

 The return on the market is expected to be 12 percent.

 The risk-free rate is 4 percent.

 GoFlower’s beta is 1.1.

A)   $121.79.

B)   $34.95.

C)   $26.64.

D)   $110.71.

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答案和详解如下：

26.If a stock sells for $50 that has an expected annual dividend of $2 and has a sustainable growth rate of 5%, what is the market discount rate for this stock?

A)   7.5%.

B)   9.0%.

C)   10.0%.

D)   12.0%.

The correct answer was B)

k = [(D₁ / P) + g] = [(2/50) + 0.05] = 0.09, or 9.00%.

27.Assuming the risk-free rate is 5% and the expected return on the market is 12%, what is the value of a stock with a beta of 1.5 that paid a $2 dividend last year if dividends are expected to grow at a 5% rate forever?

A)   $12.50.

B)   $17.50.

C)   $10.00.

D)   $20.00.

The correct answer was D)

P0	= D1 / (k-g)
Rs	=Rf + B* (RM-Rf) = 0.05 + 1.5(0.12 - 0.05) = 0.155
D1	=D0(1 + g) = 2 * (1.05) = 2.10
P0	=2.10 / (0.155 - 0.05) = $20.00

28.What is the value of a stock that paid a $0.25 dividend last year, if dividends are expected to grow at a rate of 6 percent forever? Assume that the risk-free rate is 5 percent, the expected return on the market is 10 percent, and the stock's beta is 0.5.

A)   $3.53.

B)   $17.67.

C)   $6.63.

D)   $16.67.

The correct answer was B)

The discount rate is k_e = 0.05 + 0.5(0.10-0.05) = 0.075. Use the infinite period dividend discount model to value the stock. The stock value = D₁/(k_e – g) = (0.25 x 1.06)/(0.075 – 0.06) = $17.67.

29.Which of the following is a shortcoming(s) of the constant growth dividend discount model?

A)   Firms with temporary high-growth expectations have characteristics that are inconsistent with model.

B)   Small differences in key assumptions can produce widely varying values.

C)   All these choices are correct.

D)   Many rapid growth companies pay little or no dividends, and forecasting their future plans may be futile.

The correct answer was C)

The constant growth dividend discount model cannot be used to value firms that don’t pay dividends or are experiencing supernormal growth and are very dependent on the assumed values of k and g.

30.Use the following information and the dividend discount model to find the value of GoFlower, Inc.’s, common stock?

 Last year’s dividend was $3.10 per share.

 The growth rate in dividends is estimated to be 10 percent forever.

 The return on the market is expected to be 12 percent.

 The risk-free rate is 4 percent.

 GoFlower’s beta is 1.1.

A)   $121.79.

B)   $34.95.

C)   $26.64.

D)   $110.71.

The correct answer was A)

The required return for GoFlower is 0.04 + 1.1(0.12 – 0.04) = 0.128 or 12.8%. The expect dividend is ($3.10)(1.10) = $3.41. GoFlower’s common stock is then valued using the infinite period dividend discount model (DDM) as ($3.41)/(0.128 – 0.10) = $121.79.