Which of the following statements is most correct? Other things equal, the higher the dividend growth rate, the lower the stock value. Other things equal, the lower the market value of debt, the lower the value of equity. Other things equal, the lower the dividends, the lower the stock value. Other things equal, the longer the investment holding period, the lower the stock value. Other things equal, the higher the required rate of return, the higher the stock value.

Which of the following statements is most correct? Other things equal, the higher the dividend growth rate, the lower the stock value. Other things equal, the lower the market value of debt, the lower the value of equity. Other things equal, the lower the dividends, the lower the stock value. Other things equal, the longer the investment holding period, the lower the stock value. Other things equal, the higher the required rate of return, the higher the stock value.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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What effect do increasing inflation expectations have on the required returns of investors in common stock?
How will the change in required return influence the price of a stock? How will the dividend growth rate influence the price of a stock?
Assume all firms have the same expected dividends. If they have different expected returns, how will their market values and expected returns be related? What about the relation between their dividend yields and expected returns? (Select the best choice below.) O A. Firms with high expected returns will have high market values and low dividend yields. O B. Firms with low expected returns will have low market values and low dividend yields. O C. Firms with low expected returns will have high market values and low dividend yields. O D. Firms with high expected returns will have high market values and high dividend yields.
Both EV-to-EBITDA and PE multiples can be linked to interest rates through the discount rate used in discounted cash flow valuation. Holding all else equal, when discount rates are higher, valuation ratios are lower. Perhaps because of this, we tend to see stock prices as well as, the value of private business transactions decline when interest rates increase. Macroeconomists like to describe interest rates as consisting of two components: the real interest rate component and an expected inflation component. In some situations, increases in interest rates are the result of an increasing real interest rate; in other situations, the cause of an interest rate increase is an increase in expected inflation. How might valuation ratios be expected to respond to an interest rate increase generated by an increase in expected inflation versus an interest rate increase that represents an increase in real interest rates?
(Computing rates of return) From the following price data, compute the annual rates of return for Asman and Salinas. Asman Salinas $10 $30 12 28 11 32 13 35 Time 1234 3 4 How would you interpret the meaning of the annual rates of retur? The rate of return you would have eamed on Asman stock from time 1 to time 2 is%. (Round to two decimal places.) The rate of return you would have earned on Asman stock from time 2 to time 3 is%. (Round to two decimal places.) The rate of return you would have eamed on Asman stock from time 3 to time 4 is%. (Round to two decimal places.) The rate of return you would have earned on Salinas stock from time 1 to time 2 is%. (Round to two decimal places.) The rate of return you would have earned on Salinas stock from time 2 to time 3 is %. (Round to two decimal places.) The rate of return you would have earned on Salinas stock from time 3 to time 4 is %. (Round to two decimal places.)
Reverse engineering share prices is an exercise in deductive reasoning. If we assume market price reflects share value, then through reverse engineering we can infer what the market assumes about a. the expected rate of return on equity capital, holding expected profitability and long-run growth constant. b. the expected profitability, holding the expected rate of return on equity capital and long-run growth constant. c. the expected long-run growth, holding the expected rate of return on equity capital and expected profitability constant.
Indicate whether the following statements are true or false. If the statementis false, explain why.f. If a firm follows a residual dividend policy then, holding all else constant, its dividend payout will tend to rise whenever the firm’s investment opportunities improve.
Which of the following is the best reason why the price-earnings method is often used by investors to estimate the fair price of a stock? a) Because the earning multiples are easily found in online financial databases. b) Earnings per share is a known amount that is related to the payment of future dividends. c) Because the price-earnings method gives the same answer as the constant growth method and is easier to compute. d) The price-earnings method has been shown to provide the most accurate price estimate.
please answer both. If a stock's fair return increases, what will happen to the stock's value? A. It will increase. B. It will not change. C. It will decrease. If the market risk premium rises, what will happen to the stock's price? A. It will not change. B. It will increase. C. It will decrease.
There are two basic assumptions concerning the growth rate that underlie the dividend growth model. Identify one of these assumptions and explain why the assumption is logical. (Answer the question correctly and in-depth.)
14. Which of the following statements is CORRECT? a. Other things held constant, the higher a firm's target dividend payout ratio, the higher its expected growth rate should be. b. If investors prefer firms that retain most of their earnings, then a firm that wants to maximize its stock price should set a high dividend payout ratio. c. Miller and Modigliani's dividend irrelevance theory says that the percentage of its earnings that a firm pays out in dividends has no effect on its cost of capital, but it does affect its stock price. d. The federal government sometimes taxes dividends and capital gains at different rates. Other things held constant, an increase in the tax rate on dividends relative to that on capital gains would logically lead to a decrease in dividend payout ratios. e. Suppose a firm that has been earning $2 and paying a dividend of $1.00, or a 50% dividend payout, announces that it is increasing the dividend to $1.50. The stock price then jumps from $20 to $30. Some…
A stock that does not pay a dividend must have a capital gains yield that is equal to the required return. Select one: True False

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