PM Quiz 6

You are analyzing a company which has a robust financial conditions expressed by its
return on equity that averages 15% in the long run. The company has a usual practice
of paying dividend in the proximity of 30% of net income. Expecting these trends to
continue in the foreseeable future, what is the maximum growth rate company could
offer to its shareholders on sustainable basis?
5/5
2.5%
3.5%
3.75%
4.5%

4.75%

Show Boat Dinner Theatres has paid annual dividends of $0.32, $0.48, and $0.60 a
share over the past three years, respectively. The company now predicts that it will
maintain a constant dividend since its business has leveled off and sales are expected
to remain relatively flat. Given the lack of future growth, you will only buy this stock if
you can earn at least a 16 percent rate of return. What is the maximum amount you
are willing to pay for one share of this stock today?
0/2
$3.43

$3.75
$4.43
$4.69
$4.82
Correct answer
$3.75
Roll No *
23110001

If a Rs 1000, 8% coupon, semiannual bond that has 3 years till maturity, is last traded
at Rs 901.65, calculate the annual Yield to maturity for the investors.
2/2
8%
4%
6%
12%

10%

Sessler Manufacturers made two announcements concerning its common stock today.
First, the company announced that the next annual dividend will be $1.75 a share.
Secondly, all dividends after that will decrease by 1.5 percent annually. What is the
maximum amount you should pay to purchase a share of this stock today if you
require a 14 percent rate of return?
2/2
$11.29

$12.64
$13.27
$14.00
$14.21

The current dividend yield on Clayton's Metals common stock is 2.5 percent. The
company just paid a $1.48 annual dividend and announced plans to pay $1.54 next
year. The dividend growth rate is expected to remain constant at the current level.
What is the required rate of return on this stock?
2/2
6.55 percent

6.82 percent
7.08 percent
7.39 percent
7.75 percent

The common stock of Auto Deliveries sells for $28.16 a share. The stock is expected
to pay $1.35 per share next year when the annual dividend is distributed. The firm has
established a pattern of increasing its dividends by 3 percent annually and expects to
continue doing so. What is the market rate of return on this stock?
2/2
7.42 percent
7.79 percent

19.67 percent
20.14 percent
20.86 percent

You are analyzing a stock which is expected to announce a dividend of PKR 5.0 after
a year. Your research team has estimated that the dividend has been growing at a
constant growth rate of 4% and will continue to do so. However in worst circumstances
this growth can be completely wiped out and you are wondering how much loss you
may have to incur due to the complete elimination of growth prospects, if you
purchase the stock today based on its growth projections. The required rate of return
for the stock would remain same as 12% irrespective of growth scenarios.
0/5
20.83
41.67
62.50

65.0
21.67
Correct answer
20.83

Miller Brothers Hardware paid an annual dividend of $1.15 per share last month.
Today, the company announced that future dividends will be increasing by 2.6 percent
annually. If you require a 12 percent rate of return, how much are you willing to pay to
purchase one share of this stock today?
2/2
$12.23
$12.55

$12.67
$12.72
$12.88

You are provided with the growth patterns in the dividends of a company which are as
follows. The growth rate would be 12% for the first three years, 10% for the next three
years, 8% for another three years and would then settle at 5% afterwards. The
company has recently announced dividend of Rs3.5. You are required to calculate the
value of stock today, if the stocks beta is 1.25, risk free rate is 4.5% and market return
is 10.5%
10/10
Rs. 47.6
Rs. 95.4
Rs. 125
Rs. 74.5

Rs. 39.6

The common stock of Textile Mills pays an annual dividend of $1.65 a share. The
company has promised to maintain a constant dividend even though economic times
are tough. How much are you willing to pay for one share of this stock if you want to
earn a 12 percent annual return?
2/2
$13.75

$14.01
$14.56
$14.79
$15.23

You are analyzing a stock which is currently being traded at Rs. 150.0 in anticipation
of its dividend of Rs. 12.0 expected at the end of ongoing year. The stock is 50
percent more volatile than the broader equity market, which is offering an equity risk
premium of roughly 6% per annum. The monetary policy of the country is also
expansionary due to which treasury bills are offering a meagre returns of 5% per
annum and are not being considered as an attractive investment opportunity for most
of the investors. You are skeptical about the current price of the stock and wondering
what growth projections have been used by the market on sustainable basis to value
the stock?
5/5
4%
5%
6%

7%
8%

Combined Communications is a new firm in a rapidly growing industry. The company
is planning on increasing its annual dividend by 15 percent a year for the next 4 years
and then decreasing the growth rate to 3.5 percent per year. The company just paid its
annual dividend in the amount of $0.20 per share. What is the current value of one
share of this stock if the required rate of return is 15.5 percent?
0/2
$1.82

$2.04
$2.49
$2.71
$3.05
Correct answer
$2.49

Which one of the following represents the capital gains yield as used in the dividend
growth model?
2/2
D1
D1/P0
P0
g

g/P0

For a Rs. 5000, 10% coupon, semiannual bond with 5 years left to maturity, calculate
the present value of coupon payments only if the required rate of return on that bond
is 12%.
2/2
4632.00
2791.97
1840.02

4639.52
1802.39

Calculate the current value of Rs 2000 semiannual bond with a coupon rate of 10%
and 7 years left till maturity. The yield on the comparable bond can be calculated by
adding the Risk premium of 5% in the nominal risk free rate of 3%.
2/2
2211.26

2208.25
2584.54
2578.63
1802.02

Upper Crust Bakers just paid an annual dividend of $2.80 a share and is expected to
increase that amount by 4 percent per year. If you are planning to buy 1,000 shares of
this stock next year, how much should you expect to pay per share if the market rate
of return for this type of security is 11.50 percent at the time of your purchase?
0/2
$37.33
$38.16
$38.83

$40.38
$42.00
Correct answer
$40.38

Chemical Mines has 5,000 shareholders and is preparing to elect two new board
members. You do not own enough shares to personally control the elections but are
determined to oust the current leadership. Likewise, no other single shareholder owns
sufficient shares to personally control the outcome of the election. Which one of the
following is the most likely outcome of this situation given that some shareholders are
happy with the existing management?
2/2
negotiated settlement where each side is granted control over one of the open seats
protracted legal battle over control of the board of directors
arbitrated settlement where the arbitrator determines who will be elected to the board
control of the board decided without your influence
proxy fight for control of the board

KL Airlines paid an annual dividend of $1.42 a share last month. The company is
planning on paying $1.50, $1.75, and $1.80 a share over the next 3 years,
respectively. After that, the dividend will be constant at $2 per share per year. What is
the market price of this stock if the market rate of return is 10.5 percent?
2/2
$15.98
$16.07
$18.24

$21.16
$24.10
Name *
Ahmed Sharif

Douglass Gardens pays an annual dividend that is expected to increase by 4.1
percent per year. The stock commands a market rate of return of 12.6 percent and
sells for $24.90 a share. What is the expected amount of the next dividend?
2/2
$2.03
$2.12

$3.17
$2.20
$2.28

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You are analyzing a company which has a robust financial conditions expressed by its

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