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1. Which type of security has voting rights associated with it?
A) Secured bond
B) Common stock
C) Convertible note
D) Preferred stock
2. What is an advantage of using the Gordon growth model to estimate the cost of common equity?
A) It considers historical stock performance.
B) It measures the systematic risk of the company.
C) It calculates the impact of beta on stock returns.
D) It incorporates future dividend growth expectations.
3. In the capital asset pricing model (CAPM), what does a beta (#) greater than 1 signify for a portfolio?
A) The portfolio has less risk than the market.
B) The portfolio is expected to move in the opposite direction of the market.
C) The portfolio has more risk than the market.
D) The portfolio will always outperform the market.
4. What does a high inventory turnover ratio indicate about a company's inventory management?
A) The company has efficient inventory management.
B) The company has too little inventory.
C) The company's inventory is obsolete.
D) The company has excess inventory.
5. A company is expected to pay a dividend of $2 next year, and dividends are expected to grow at 5% per year indefinitely. The required rate of return on the company's stock is 10%.
What is the value of the stock using the Gordon growth model?
A) $61
B) $15
C) $20
D) $40
Solutions:
| Question # 1 Answer: B | Question # 2 Answer: D | Question # 3 Answer: C | Question # 4 Answer: A | Question # 5 Answer: D |
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