Bond and Market Capitalization Rate

4168 Words Apr 26th, 2013 17 Pages
330-s2013-prac9
1. An American put option gives its holder the right to _________.
A. buy the underlying asset at the exercise price on or before the expiration date
B. buy the underlying asset at the exercise price only at the expiration date
C. sell the underlying asset at the exercise price on or before the expiration date
D. sell the underlying asset at the exercise price only at the expiration date
2. An American call option gives the buyer the right to _________.
A. buy the underlying asset at the exercise price on or before the expiration date
B. buy the underlying asset at the exercise price only at the expiration date
C. sell the underlying asset at the exercise price on or before the expiration date
D. sell
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A. $31.25B. $32.37C. $38.47D. $41.32
8. Eagle Brand Arrowheads has expected earnings of $1.25 per share and a market capitalization rate of 12%.
Earnings are expected to grow at 5% per year indefinitely. The firm has a 40% plowback ratio. By how much does the firm 's ROE exceed the market capitalization rate?
A. 0.5%B. 1.0%C. 1.5%D. 2.0%
9. A preferred share of Coquihalla Corporation will pay a dividend of $8.00 in the upcoming year, and every year thereafter, i.e., dividends are not expected to grow. You require a return of 7% on this stock. Using the constant growth DDM to calculate the intrinsic value, a preferred share of Coquihalla Corporation is worth
_________.
A. $13.50B. $45.50C. $91.00D. $114.29
10. Brevik Builders has an expected ROE of 25%. Its dividend growth rate will be __________ if it follows a policy of paying 30% of earning in the form of dividends.
A. 5.0%B. 15.0%C. 17.5%D. 45.0%
11. Cache Creek Manufacturing Company is expected to pay a dividend of $3.36 in the upcoming year.
Dividends are expected to grow at 8% per year. The riskfree rate of return is 4% and the expected return on the market portfolio is 14%. Investors use the CAPM to compute the market capitalization rate, and the constant growth DDM to determine the value of the stock. The stock 's current price is $84.00. Using the constant growth
DDM, the market capitalization rate is _________.
A. 9%B. 12%C. 14%D. 18%
12.

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