Question Details

How many shares can the investor purchase 



1. 	Todd Mountain Development Corporation is expected to pay a dividend of $3.00 	in the upcoming year. Dividends are expected to grow at the rate of 8% per year. 	The risk-free rate of return is 5% and the expected return on the market portfolio 	is 17%. The stock of Todd Mountain Development Corporation has a beta of 	0.75. Using the constant growth DDM, the intrinsic value of the stock is 	_________. 									a.   4.00
	b.   17.65
	c.   37.50
	d.   50.00

2. 	Ace Frisbee Corporation produces a good that is very mature in their product life 	cycles. Ace Frisbee Corporation is expected to pay a dividend in year 1 of $3.00, 	dividend in year 2 of $2.00, and a dividend in year 3 of $1.00. After year 3, 	dividends are expected to decline at the rate of 2% per year. An appropriate 	required return for the stock is 8%. Using the multistage DDM, the stock should 	be worth __________ today. 						
	a.   $13.07
	b.   $13.58
	c.   $18.25
	d.   $18.78
The information below applies to the next three questions (3-5)                       	Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 	per share. The investor has $7,000 to invest and the current exchange rate is 	$1.40/₤.
3. 	How many shares can the investor purchase ? 				
	a.  140
	b.  100
	c.  71.43
	d.  none of the above 
4. 	After one year, the exchange rate is unchanged and the share price is ₤55. What is 	the dollar-denominated return? 					
	a.   14%
	b.   10%
	c.   9.3%
	d.   7.1% 
5. 	After one year, the exchange rate is $1.60/₤ and the share price is ₤55. What is 	the dollar-denominated return? 					
	a.   25.7%
	b.   16%
	c.   14.3%
	d.   9.3%



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