Question 1: If the stock market is semi-strong form efficient, should you spend time researching a company, analyzing sales and profit trends, the economy, etc.? Why or why not?
Question 2: Which provides more stable income, in general, and why: preferred stock or common stock?
Question 3: What is the preemptive right and what benefit does it have for the shareholder?
Question 4: Dividends in the coming year are expected to be $2.40 per share. Historically, dividends have grown at a 5% annual rate and this rate is expected to continue in the future. Based on current market conditions, a 13% return is required. What is the intrisic value of this stock?
Question 5: A share of preferred stock currently sells for $50.00 and pays a dividend of $3.00 annually. What rate of return is being earned on this stock (in percentage terms)?
Question 6: Amax, Inc. has a beta of 1.4. The yield on 10-year Treasury Bonds is 2% and the market risk premium is 5%. What is the cost of capital for common equity using the CAPM?
Question 7: How should a company adjust the cost of capital for risk?.
Question 8: What are two factors that the firm cannot control that affect WACC?
Question 9: What are 2 common problems in estimating beta?
Question 10: Equity capital raised by reinvesting retained earnings has no cost since the firm already has the money. Evaluate this statement.