1.

 What is the model called that determines the present value of a stock based on its next annual
dividend, the dividend growth rate, and the applicable discount rate? 
A. zero growth
B. dividend growth
C. capital pricing
D. earnings capitalization
E. discounted dividend

2. Which one of the following is computed by dividing next year's annual dividend by the current
stock price? 
A. yield to maturity
B. total yield
C. dividend yield
D. capital gains yield
E. growth rate

3. Which one of following is the rate at which a stock's price is expected to appreciate? 
A. current yield
B. total return
C. dividend yield
D. capital gains yield
E. coupon rate

4. Which one of the following types of stock is defined by the fact that it receives no preferential
treatment in respect to either dividends or bankruptcy proceedings? 
A. dual class
B. cumulative
C. non-cumulative
D. preferred
E. common

5. What are the distributions to shareholders by a corporation called? 

6. Which one of the following is a type of equity security that has a fixed dividend and a priority
status over other equity securities? 
A. senior bond
B. debenture
C. warrant
D. common stock
E. preferred stock
7. An agent who arranges a transaction between a buyer and a seller of equity securities is called
a: 
A. broker.
B. floor trader.
C. capitalist.
D. principal.
E. dealer.

8. Sessler Manufacturers made two announcements concerning its common stock today. First,
the company announced that the next annual dividend will be $1.75 a share. Secondly, all
dividends after that will decrease by 1.5 percent annually. What is the maximum amount you
should pay to purchase a share of this stock today if you require a 14 percent rate of return? 
A. $11.29
B. $12.64
C. $13.27
D. $14.00
E. $14.21

9. How much are you willing to pay for one share of Jumbo Trout stock if the company just paid
a $0.70 annual dividend, the dividends increase by 1.6 percent annually, and you require a 10
percent rate of return? 
A. $8.29
B. $8.33
C. $8.47
D. $8.53
E. $8.59

10. Free Motion Enterprises paid a $2.20 per share annual dividend last week. Dividends are
expected to increase by 3.75 percent annually. What is one share of this stock worth to you today
if your required rate of return is 15 percent? 
A. $19.06
B. $19.30
C. $19.56
D. $20.29
E. $20.59

11. Upper Crust Bakers just paid an annual dividend of $2.80 a share and is expected to increase
that amount by 4 percent per year. If you are planning to buy 1,000 shares of this stock next year,
how much should you expect to pay per share if the market rate of return for this type of security
is 11.50 percent at the time of your purchase? 
A. $37.33
B. $38.16
C. $38.83
D. $40.38
E. $42.00
12. The common stock of Textile Mills pays an annual dividend of $1.65 a share. The company
has promised to maintain a constant dividend even though economic times are tough. How much
are you willing to pay for one share of this stock if you want to earn a 12 percent annual return? 
A. $13.75
B. $14.01
C. $14.56
D. $14.79
E. $15.23

13. Show Boat Dinner Theatres has paid annual dividends of $0.32, $0.48, and $0.60 a share
over the past three years, respectively. The company now predicts that it will maintain a constant
dividend since its business has leveled off and sales are expected to remain relatively flat. Given
the lack of future growth, you will only buy this stock if you can earn at least a 16 percent rate of
return. What is the maximum amount you are willing to pay for one share of this stock today? 
A. $3.43
B. $3.75
C. $4.43
D. $4.69
E. $4.82

14. The current dividend yield on Clayton's Metals common stock is 2.5 percent. The company
just paid a $1.48 annual dividend and announced plans to pay $1.54 next year. The dividend
growth rate is expected to remain constant at the current level. What is the required rate of return
on this stock? 
A. 6.55 percent
B. 6.82 percent
C. 7.08 percent
D. 7.39 percent
E. 7.75 percent

15. Northern Gas recently paid a $2.80 annual dividend on its common stock. This dividend
increases at an average rate of 3.8 percent per year. The stock is currently selling for $26.91 a
share. What is the market rate of return? 
A. 13.88 percent
B. 14.03 percent
C. 14.21 percent
D. 14.37 percent
E. 14.60 percent
16. Electronics, Inc. common stock returned a nifty 22.68 percent rate of return last year. The
dividend amount was $0.25 a share which equated to a dividend yield of 0.84 percent. What was
the rate of price appreciation for the year? 
A. 21.84 percent
B. 22.38 percent
C. 22.60 percent
D. 22.87 percent
E. 23.52 percent

17. Roy's Welding Supplies common stock sells for $38 a share and pays an annual dividend that
increases by 3 percent annually. The market rate of return on this stock is 8.20 percent. What is
the amount of the last dividend paid? 
A. $1.80
B. $1.86
C. $1.92
D. $1.98
E. $2.10

18. Home Canning Products common stock sells for $44.96 a share and has a market rate of
return of 12.8 percent. The company just paid an annual dividend of $1.04 per share. What is the
dividend growth rate? 
A. 8.29 percent
B. 8.45 percent
C. 9.23 percent
D. 9.67 percent
E. 10.25 percent

19. Winter Time Adventures is going to pay an annual dividend of $2.86 a share on its common
stock next year. This year, the company paid a dividend of $2.75 a share. The company adheres
to a constant rate of growth dividend policy. What will one share of this common stock be worth
five years from now if the applicable discount rate is 11.7 percent? 
A. $43.45
B. $43.87
C. $44.15
D. $45.19
E. $47.00
20. Hightower Pharmacy just paid a $3.10 annual dividend. The company has a policy of
increasing the dividend by 3.8 percent annually. You would like to purchase 100 shares of stock
in this firm but realize that you will not have the funds to do so for another four years. If you
require a 16 percent rate of return, how much will you be willing to pay per share for the 100
shares when you can afford to make this investment? 
A. $29.50
B. $30.62
C. $31.12
D. $31.78
E. $32.47

21. National Warehousing just announced it is increasing its annual dividend to $1.18 next year
and establishing a policy whereby the dividend will increase by 3.25 percent annually thereafter.
How much will one share of this stock be worth 8 years from now if the required rate of return is
9.5 percent? 
A. $24.38
B. $25.68
C. $26.51
D. $27.02
E. $27.37

22. KL Airlines paid an annual dividend of $1.42 a share last month. The company is planning
on paying $1.50, $1.75, and $1.80 a share over the next 3 years, respectively. After that, the
dividend will be constant at $2 per share per year. What is the market price of this stock if the
market rate of return is 10.5 percent? 
A. $15.98
B. $16.07
C. $18.24
D. $21.16
E. $24.10

23. Diets For You announced today that it will begin paying annual dividends next year. The first
dividend will be $0.12 a share. The following dividends will be $0.15, $0.20, $0.50, and $0.60 a
share annually for the following 4 years, respectively. After that, dividends are projected to
increase by 4 percent per year. How much are you willing to pay to buy one share of this stock
today if your desired rate of return is 8.5 percent? 
A. $9.67
B. $9.94
C. $10.38
D. $10.50
E. $10.86
24. Sweatshirts Unlimited is downsizing. The company paid a $2.80 annual dividend last year.
The company has announced plans to lower the dividend by 25 percent each year. Once the
dividend amount becomes zero, the company will cease all dividends and go out of business.
You have a required rate of return of 15.5 percent on this particular stock given the company's
situation. What are your shares in this firm worth today on a per share basis? 
A. $5.19
B. $6.91
C. $8.68
D. $19.29
E. $22.11

25. Jefferson Mills just paid a dividend of $1.56 per share on its stock. The dividends are
expected to grow at a constant rate of 8 percent per year, indefinitely. What will the price of this
stock be in 7 years if investors require a 15 percent rate of return? 
A. $28.18
B. $32.04
C. $37.46
D. $41.25
E. $43.33

26. Whistle Stop Trains pays a constant $16 dividend on its stock. The company will maintain
this dividend for the next 14 years and will then cease paying dividends forever. What is the
current price per share if the required return on this stock is 15 percent? 
A. $77.78
B. $82.48
C. $91.59
D. $106.67
E. $112.00