1. The Frisco Company just paid $2.20 as its annual dividend. The dividends have been increasing at a rate of 4% annually and this trend is expected to continue. The stock is currently selling for $63.60 a share. What is the rate of return on this stock?
2. Heidi invested $3,000 and purchased shares of a German corporation when the exchange rate was $1,00=1.6 euro. After six months, she sold all of the share for 3,180 euro, when the exchange rate was $1.00=1.12 euro. No dividends were paid during the time Heidi owned the shares of stock. What is the amount of Heidi's gain or loss on this investment?
3. The common stock of Peachtree Paper, Inc., is currently selling for $40 a share. A dividend of $2.00 per share was just paid. You are estimating that this dividend will grow at a constant rate of 10%.
(a) Using the constant growth DVM model, what is your required rate of return if $40 is a resonable trading price? (show all work)
(b) If Peachtree Papers is a new company that produces a relatively unknown product, is the constant growth model a good valuation method for a potential investor to use? Justify your answer.
4. The risk-free rate of return is 4% while the market rate of return is 11%. Delta Company has a historical beta of 1.25. Today, the beta for Delta Company was adjusted to reflect internal changes in the structure of the company. The new beta is 1.38. What is the amount of the change in the expected rate of return for Delta Company based on this revision to beta?
5. Tureves S.A. is a French biotechnology company that has developed promising therapies for hair loss, obesity, and wrinkled skin. Sales have doubled in each of the last three years, but so far, the company has yet to turn a profit. Which common procedures would be most, and least appropriate to value Tureves' ADRs.
6. Courtney purchased 100 shares of stock at $38 using her 70% margin account. Her maintenance margin is 40%. Courtney has no other securities in her account. At what price will Courtney receive a margin call?
7. Your portfolio consists of Microsoft and Google. On September 15, you fully invested your $1,000 on these two stocks with 50% of your money going into Microsoft (purchase price=$25 per share) and Google was purchased at $500 per share. On November 8, you sold your Microsoft at $29 a share and Google at $485 a share. Assume there is no cost to buy stocks but stocks but there is a $20 total commission charge to sell a annualize the return. Why is it necessary to compare your portfolio's performance against a certain index?
8. Investors who conduct industry analyses typically favor companies with strong market positions over companies with less secure market position because firms with strong market positions tend to
1. be price leaders. 2. benefit more from economies of scale. 3. have better R&D programs. 4. have lower production costs.
A. 2 and 4 only B. 1, 2 and 4 only C. 1, 2 and 3 only D. 1, 2,3 and 4
9. A company has annual sales of $160 million, a net profit margin of 4%, and total assets of $90 million. It carries $10 million in accounts receivable, $25 million in inventory, has $55 million in total debt, and 5 million shares of common stock outstanding. Based on this information, the company's return on equity (ROE) is
A. 4.4% B. 7.1% C. 11.5% D. 18.3%
10. A company has 2 million shares of common stock outstanding. Annual sales are $26 million. The net profit margin is 8% and the dividend payout ratio is 40%. Currently the stock trades at $17.68 per share. Given this information, the company has a P/E ratio of
A. 16 and a dividend yield of 2.35% B. 16 and a dividend yield of 3.20% C. 17 and a dividend yield of 2.35% D. 17 and a dividend yield of 3.20%
11. JJ Industries has a P/E ratio of 18 and an EPS of $0.93. This means that JJ's stock is currently selling for
A. $16.74 per share B. $17.07 per share C. $18.00 per share D. $19.35 per share
12. The PEG ratio
A. preferred by investors is equal to 2.0 or higher B. Compares the price/earnings ratio to the rate of growth of the company's earnings.
C. is a measure of a firm's liquidity D. measures the ability of a firm's assets to generate growth for the firm
13. Which of the following variables affect the P/E ratio?
1. capital structure of a firm 2. amount of dividends paid 3. inflation rate 4. earnings rate of growth
A. 1, 2 and 3 only B. 1, 2 and 4 only 4. 1, 3 and 4 only D. 1, 2, 3 and 4
14. Which of the following statements correctly recommendations based on behavioral finance?
1. Don't hesitate to sell a losing stock 2. Trade frequently 3. Chase performance 4. Be humble and open-minded
A. 1 and 2 only B. 1 and 4 only C. 2 and 3 only D. 3 and 4 only
15. Dr. Zweibel's portfolio consists of four stocks: AZMN, 35%, beta 2.4; MKR, 20%, beta 1.6; ABDE, 2.5%, beta 1.8; and SBUK, 20%, beta 2.1. Compute Dr. Z's portfolio beta. Does he seem to be a conservative or aggressive investor?