Question 2 NASDAQ is an example of a dealer market. True False Question 3 The Ne

Question

Question 2 NASDAQ is an example of a dealer market. True False

Question 3 The New York Stock Exchange is an example of an auction market. True False

Question 4 The least efficient of all the different types of secondary markets is the auction market. direct search market. dealer market. broker market.

Question 5 The three assumptions that cover most dividend growth patterns are zero growth, contstant growth, no dividends; zero growth, random growth, no dividends; zero growth, constant growth mixed (supernormal) growth; zero growth, random growth, infinite growth

Question 6 Which of the following is not a widely known stock market index? The Dow Jones Industrial Average; The OTQ Composite Index; The New York Stock Exchange Index; The S&P 500 Index

Question 7 Zephyr Electricals is a company with no growth. The last dividend was $4.50 and it expects no change in future dividends. What is the current price of the company's stock if the required rate of return is 9 percent?

Question 8 Johnson Corporation JUST PAID a dividend of $4.63. The expected growth rate on dividends is 8 percent. What is the current price of this stock if the required rate of return is 10 percent?

Question 9 Grant, Inc. is a fast growing company and its dividend is expected to grow at a rate of 10 percent for the next two years. It will then settle to a constant growth rate of 5 percent. If the last dividend was $6.20 and the required rate of return is 15 percent, what is the current price of the stock?

Question 10 Ajax Company has issued perpetual preferred stock with an annual dividend of $4.80. What is the value of this preferred stock if the required rate of return is 8 percent?

Explanation / Answer

Ans 2 (True) NASDAQ-Full form of NASDAQ is National Association of Securities Dealers Automated Quotations.

It is also called dealers market.

Ans 3(TRUE) New York Stock Exchange (NYSE) .It is also called auction market.

Ans 4 The least efficient of all the different types of secondary markets is the direct search market.

The sales of common stock of small private companies and private placement transactions are good examples of direct search markets.

Ans 5) Assumptions that cover most dividend growth:

Ans (6)

It is not a widely known stock market index The OTQ Composite Index

Ans 7)

                                                   Zero Growth=P0=$4.50/.09

                                                                             =$50

Ans 8)    Value of stock = D1/ (k - g)

           Value of stock=$4.63/(.10-.08)

            Value of stock=$4.63/.02

                                   =$231.50

Ans (9) P3 = D3 (1 + g) / (R – g)

                     =$6.20 (1.10)2(1.05) / (.15 – .05)

                          =$7.78771/.10

                           =$77.87

Ans 10) R = D / P0

                .08=$4.80/ P0

                       P0=$4.80/.08

                       =$60

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