Economics 2154A/B ch7

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Department
Economics
Course
Economics 2154A/B
Professor
Desmond Mc Keon
Semester
Fall

Description
71 Computing the Price of Common Stock1 A stockholders ownership of a companys stock gives her the right to A vote and be the primary claimant of all cash flowsB vote and be the residual claimant of all cash flowsC manage and assume responsibility for all liabilitiesD vote and assume responsibility for all liabilities2 Stockholders rights include A the right to voteB the right to manageC primary claims on all cash flowsD ownership of bonds3 Stockholders rights include A the right to manageB the right to change personnel policyC the right to veto managements decisionsD residual claim on all of a companys assets4 Stockholders are residual claimants meaning that they A have the first priority claim on all of a companys assetsB are liable for all of a companys debtsC will never share in a companys profitsD receive the remaining cash flow after all other claims are paid5 Common stock is the principal way that corporations raise A shortterm debt B foreign exchangeC longterm debtD equity capital6 Dividends are paid from A liabilitiesB debtsC net earningsD interest7 Periodic payments of net earnings to shareholders are known as A capital gainsB dividends C profits D interest8 The value of any investment is found by computing the A present value of all future salesB present value of all future liabilitiesC future value of all future expensesD present value of all future cash flows9 The value of any investment is found by computing the A present value of all coupon paymentsB present value of all future liabilitiesC future value of all dividendsD value in todays dollars of all future cash flows10 In the oneperiod valuation model the value of a share of stock today depends uponA the present value of both dividends and the expected sales priceB only the present value of the future dividendsC the actual value of the dividends and expected sales price received in one yearD the future value of dividends and the actual sales price11 In the oneperiod valuation model the current stock price increases if A the expected sales price increasesB the expected sales price fallsC the required return increasesD dividends are cut12 In the oneperiod valuation model an increase in the required return on investments in equityA increases the expected sales price of a stockB increases the current price of a stockC reduces the expected sales price of a stockD reduces the current price of a stock13 In the oneperiod valuation model with no dividend payments the current price of the stock isgiven by A P0P11Ke B P0interest1Ke P11KeC P0 P11Ke x 100 D P0 P11Ke x 36514 Using the oneperiod valuation model assuming a yearend dividend of 011 an expectedsales price of 110 and a required rate of return of 10 percent the current price of the stockwould be A 11011B 12112C 10010D 1001115 Using the oneperiod valuation model assuming a yearend dividend of 100 an expectedsales price of 100 and a required rate of return of 5 percent the current price of the stock wouldbe A 11000 B 10100C 10000 D 961916 The analysts predict that the price of corporations XYZ stock one year from now will be22 XYZ announced that is not going to pay dividends next year You decide that you would besatisfied to earn a 10 percent on the investment on this stock thus this stock is worth for you nowA 20 B 22C 24 D 1817 The analysts predict that the price of corporations XYZ stock one year from now will be120 XYZ announced that is not going to pay dividends next year You decide that you wouldbe satisfied to earn a 20 percent on the investment on this stock thus this stock is worth for you nowA 100B 120 C 130 D 90
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