Limitations of the discounted dividend model

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Reference no: EM132305707

1. A representative investor whose actions reflect the beliefs of people who are trading a stock is known as an institutional investor.

True

False

2. If XYZ corp. has annual dividend yield of 3.0%% and has capital appreciation of 8% in the past year, the company has provided a total return of what amount?

A. 5%

B. 7%

C. 9%

D. 11%

3. One of the purpose of preemptive rights is:

A. Retire bonds in an orderly manner.

B. Provide guaranteed capital appreciation to investors.

C. Protect shareholders from a dilution of value.

D. Protects bond issuers from rising interest rates.

4. Which of the following is (are) limitations of the discounted dividend model?

A. the expected growth rate must be less than the required rate of return

B. if the stock does not pay a dividend then the model does not work.

C. the resulting stock price is hypersensitive to the growth rate chosen.

D. all of this

5. ABC Corp. has estimated value of next year's dividends of $4.00 and constant dividend growth rate of 5%. If the company's expected rate of return is 10%, what is the expected price of ABC's shares according to the discounted dividend model?

A. $20

B. $40

C. $60

D. $80

6. The amount a company can write off for tangible assets such as building and machinery is known as:

A. depreciation

B. capital expenditure

C. amortization

D. working capital

7. The daily market price of a stock is determined by:

A. company analysts

B. marginal investors

C. company executives

Reference no: EM132305707

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