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2 Nov 2020

12. The rate of return on financial investment in a share of stock can come in two forms:

a. as dividends paid by the firm and

b. as a capital gain achieved by selling the stock for more than you paid.

c. both a and b

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Raushan Raj
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2 Nov 2020

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Related questions

Suppose that a friend has started a business selling software. The software is a great hit, and the firm quickly grows large enough to be able to sell the stock. Your friend's firm promises to pay a dividend of $5 per share every year for the next 50 years, at which point your friend intends to shut down the business. The firm's stock is currently selling for $75 per share. If you believe that the company really will pay dividends as stated and if you require a 10% rate of return to make this investment, should you buy the shock? Briefly explain and show your work.

True, false, or uncertain. (5 points each) Your grade will be based solely on your explanation.

1. Risk in economics and finance is the possibility of loss, which implies that standard deviation is an incorrect measure of risk.

2. On stock exchanges in the United States, there is only one type of order that can be placed: a market order.

3. If the efficient markets theory of stock prices is correct, technical analysis of stock prices is useless.

4. Bubbles are hard to predict.

5. According to the Capital Asset Pricing Model, the beta of a stock is the risk premium for holding a stock.

6. Internal rate of return is a better guide to choosing investments than present value.

7. A leveraged investment is riskier.

8. If Firm A has a higher beta than Firm B, then Firm A has a higher systematic risk than Firm B.

9. If firm C has a lower beta than Firm D, then Firm C has lower unsystematic (idiosyncratic) risk than Firm D.

10. A stock that is a 'castle in the air'€ has a high expected return after its price has risen.

11. The net present value of a firm to shareholders is the present value of all revenue received by the firm.

12. The internal rate of return is the discount rate that results in the NPV being positive.

1. Which of the following is an example of a financial intermediary?

a) Banks.

b) The Federal Reserve.

c) The U.S. Treasury.

d) The department of finance.

2. The price paid for the use of money is defined as the:

a) Rental rate.

b) Interest rate.

c) Profit rate.

d) Inflation rate.

3. The owners of a corporation are:

a) Liable for its debts.

b) Those people who own the bonds issued by the corporation.

c) The shareholders of the corporation's stock.

d) The board of directors.

4. The P/E ratio, or price to earnings ratio of a stock, can be computed using which of the following formulas?

a) (Revenue per share) x (Price of stock share).

b) (Price of stock share) x (Revenue per share).

c) (Earnings per share) x (Price of stock share).

d) (Price of stock share) x (Earnings per share).

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