Question Details

An underpriced stock provides an expected return which is 


1. 	An underpriced stock provides an expected return which is ________ the 
	required return based on the capital asset pricing model (CAPM). 	

	a.   less than
	b.   equal to
	c.   greater than
	d.   greater than or equal to

2. 	The constant growth dividend discount model (DDM) can be used only when the 
	_________. 								
	a.   growth rate is less than or equal to the required return
	b.   growth rate is greater than or equal to the required return
	c.   growth rate is less than the required return
	d.   growth rate is greater than the required return

3. 	You wish to earn a return of 10% on each of two stocks, A and B. Each of the 
	stocks is expected to pay a dividend of $4 in the upcoming year. The expected 
	growth rate of dividends is 6% for stock A and 5% for stock B. Using the constant 
	growth DDM, the intrinsic value of stock A _______. 		
	a.   will be higher than the intrinsic value of stock B
	b.   will be the same as the intrinsic value of stock B
	c.   will be less than the intrinsic value of stock B
	d.   more information is necessary to answer this question
4. 	The market capitalization rate on the stock of Aberdeen Wholesale Company is 	10%. Its expected ROE is 12% and its expected EPS is $5.00. If the firm's plow-	back ratio is 50%, its P/E ratio will be _________. 				
a.   8.33
	b.   12.50
	c.   19.23
	d.   24.15
5. 	Grott and Perrin, Inc. has expected earnings of $3 per share for next year. The 	firm's ROE is 20% and its earnings retention ratio is 70%. If the firm's market 	capitalization rate is 15%, what is the present value of its growth opportunities?
											
a.   $20
	b.   $70
	c.   $90
	d.   $115




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