Question Details

Stock A has a price of $25 per share, while Stock B has a price of $40 per share.  Which of the following statements is most correct 



1.	Stock A has a required return of 10 percent.  Its dividend is expected to grow at a constant rate of 7 percent per year.  Stock B has a required return of 12 percent.  Its dividend is expected to grow at a constant rate of 9 percent per year.  Stock A has a price of $25 per share, while Stock B has a price of $40 per share.  Which of the following statements is most correct ?
a.	The two stocks have the same dividend yield.  
b.	If the stock market were efficient, these two stocks should have the same price.
c.	If the stock market were efficient, these two stocks should have the same expected return.
d.	Statements a and c are correct.
2.      If D1 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stock- expected capital gains yield for the coming year ?

a.	5.2%
b.	5.4%
c.	5.6%
d.	6.0%  
3.        The Lashgari Company is expected to pay a dividend of $1 per share at the end of the year, and that dividend is expected to grow at a constant rate of 5% per year in the future.  The company's beta is 1.2, the market risk premium is 5%, and the risk-free rate is 3%.  What is the company's current stock price?

a.	$15.00
b.	$20.00
c.	$25.00  
d.	$30.00
4.	McKenna Motors is expected to pay a $1.00 per-share dividend at the end of the year (D1 = $1.00).  The stock sells for $20 per share and its required rate of return is 11 percent.  The dividend is expected to grow at a constant rate, g, forever.  What is the growth rate, g, for this stock?

a.	5%
b.	6%   
c.	7%
d.	8%
5.	The last dividend paid by Klein Company was $1.00.  Klein- growth rate is expected to be a constant 5 percent for 2 years, after which dividends are expected to grow at a rate of 10 percent forever.  Klein- required rate of return on equity (ks) is 12 percent.  What is the current price of Klein- common stock? 
a.	$21.00
b.	$33.33
c.	$42.25
d.	$50.16  



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