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The dividend on preferred stock is most similar to:
a. common stock with no growth in dividends
b. common stock with constant growth in dividends
c. common stock with variable growth in dividends
d. certificate of deposit
a common stock with no growth in dividends

In a general sense, the value of any asset is the
a. value of the dividends received from the asset
b. present value of the cash flows received from the asset
c. value of past dividends and price increases for the asset
d. fufture value of the expected earnings discounted by the asset's cost of captial
b present value of the cash flows received from the asset

By using different discount rates, the market allocates capital to companies based on their risk, efficiency, and expected returns.
True

When inflation rises, bond prices fall.
True

An issue of common stock is selling for $57.20. The year end dividend is expected to be $2.32 assuming a constant growth rate of 6%. What is the required rate of return?
a. 10.3%
b. 10.1%
c. 4.1%
d. none of the above
b 10.1%

The riskfree rate of return is equal to the inflation premium plus the real rate of return.
True

An issue of common stock is expected to pay a dividend of $4.80 at the end of the year. Its growth rate is equal to 8%. If the required rate of return is 13%, what is its current price?
a. $103.68
b. $36.92
c. $96.00
d. none of the above
c $96.00

A tenyear bond, with par value equals $1000, pays 10% annually. If similar bonds are currently yielding 6% annual, what is the market value of the bond? Use semiannual analysis.
a. $1000.00
b. $1127.50
c. $1297.85
d. $2549.85
c $1297.85

The longer the maturity of a bond, the greater the impact on price to changes in market interest rates.
True

A 20year bond pays 12% annual interest in semiannual payments. The current market yield to maturity is 10%. The appropriate interest factors should be in the tablesunder 5% for 40 periods.
True

When the interest rate on a bond and its yield to maturity are equal, the bond will trade at par value.
True

Stock valuation models are dependent upon
a. expected dividends, future dividend growth and an appropriate discount rate.
b. past dividends, flotation costs and bond yields
c. historical dividends, historical growth and an appropriate discount rate
d. all of the able
a expected dividends, future dividend growth and an appropriate discount rate

Firm's with bright expectations for the future, tend to trend at high P/E ratios.
True

If in determining the yield to maturity on a bond at a given interest rate, you get a value below the current market price, in the next calculation you should use
a. a higher interest rate
b. a lower interest rate
c. a longer maturity
d. a higher coupon payment
b a lower interest rate

Preferred stock would be valued the same as common stock with a zero dividend growth rate.
True

Which of the following is not one of the components that make up the required rate of return on a bond?
a. risk premium
b. real rate of return
c. inflation premium
d. maturity payment
d maturity payment

The market determined required rate of return is also called the discount rate.
True

The valuation of a financial asset is based on the concept of determining the present value of future cash flows.
True

