FMI ASSIGNMENT_9

6. C
requires g2 to be less than the discount rate.
16. D
The current stock price is equivalent to 21 years of the firm's current earnings per share
26. D.
guarantees the purchase price but not the order execution
Limit order is a type of order where one wishes to buy or sell scrip (stock/ index) at certain price. In
limit order price can be assured but execution isn’t.

36. A

The value of the stock does not grow, dividends are constant.Dividends are assumed to last
forever. Then the formula is
P(0) = D / R
The presentvalue = 15.25
D= 2.25
15.25 = 2.25 / R
R = 2.25 / 15.25 = .1475 or 14.75%
14.75%

46. E
P = 23.43 = 1.20 × (1 + g) / (.1165 - g);
g = .0621= 6.21%

56. B
P = .30 / 1.142 + .30 / 1.143 + (1 / .14) / 1.143 = 5.25

66. C
R = Div/P0 + g = (.462(1.056))/11.63) + .056 = 7.7
79.
Bond have a final maturity date and promised payments at fixed periods of time so once an
appropriate discount rate is established, valuing a bond is relatively simple. For stocks, the
only valuation model we have up to this point in the text is the dividend growth model
which requires estimation of a dividend growth rate and also requires that the growth rate
be less than the required return. Normally, all of the information required to find the yield
on a publicly traded bond is publicly available while only the price and the most current
dividend are available for stocks.