1.

An investor gathered the following data in order to estimate the value of the company's preferred stock: Par value of preferred stock offered at a 6% dividend rate Company's sustainable growth rate Yield on comparable preferred stock issues Investor's marginal tax rate The value of company's preferred stock is closest to: A. $52.17 B. $74.53 C. $96.92 2. An investor uses the data below and the constant growth model to evaluate a company's common stock. To estimate growth, she uses the average value of the: 1. Divided growth rate over the period 2004-2009 and 2. Sustainable growth rate for the year 2009 Year 2009 2008 2007 2006 2005 2004 EPS $3.20 $3.60 $2.44 $2.08 $2.76 $2.25 DPS $1.92 $1.85 $1.74 $1.62 $1.35 $1.25 ROE 12.00% 17.00% 13.00% 15.00% 11.00% 9.00% $100 5% 11.5% 30%

If her requited return is 15 percent, the stock's estimated value is closest to: A. $23.71 B. $25.31 C. $30.14 3. When creating a security market index, the target market: A. determines the investment universe. B. is usually a broadly defined asset class. C. determines the number of securities to be included in the index. 4. The following data pertains to a margin purchase of a stock by an investor. Stock's purchase price Sale price Shares purchased $50/share $55/share 500 1

Margin Call money rate Dividend Transaction commission on purchase Transaction commission on sale

45.00% 6.00% $1.80/share $0.05/share $0.05/share

If the stock is sold exactly one year after the purchase, the total return on the investor's investment is closest to: A. 14% B. 19% C. 22% 5. The index weighting that results in portfolio weights shifting away from securities that have increased in relative value toward securities that have fallen in relative value whenever the portfolio is rebalanced is most accurately described as: A. Equal weighting. B. Fundamental weighting. C. Float-adjusted market-capitalization weighting. 6. According to the industry life-cycle model, an industry in the shakeout stage is best characterized as experiencing: A. Increasing demand but falling prices. B. Slowing growth and intense competition. C. Little or no growth and industry consolidation. 7. An investor gathers the following data. To estimate the stock's justified forward P/E, the investor prefers to use: The earnings growth rate rather than the dividends growth rate and The average of the payout ratios over the relevant period, in this case 2006-2009, rather most recent payout ratio. Year 2009 2008 2007 2006 EPS $3.20 $3.60 $2.44 $2.50 DPS $1.92 $1.80 $1.71 $1.60 ROE 12.00% 17.00% 13.00% 15.00%

The yield on 10-year T-note is 3 percent and the current equity risk premium is 6.5 percent. Beta = 1.3. The stock's justified forward P/E is closest to: A. B. C. 12 16 21. 2

8. An investor evaluating a company's common stock for investment has gathered the following data. Current year's earnings per share Dividend payout ratio Dividend growth rate expected during Year 1 and 2 Dividend growth rate expected after Year 2 Investor's requited rate of return The value per share of this common stock is closest to: A. $28.57 B. $31.57 C. $38.70 9. According to behavioral finance, observed overreaction in securities markets most likely occurs due to: A. Loss aversion B. Gambler's fallacy C. Disposition effect 10. Companies pursuing cost leadership will most likely: A. Invest in productivity-improving capital equipment. B. Engage in defensive pricing when the competitive environment is one of high rivalry. C. Establish strong market research teams to match customer needs with product development. 11. An analyst gathers the following data to determine the attractiveness of the companys common stock: Dividends per share in 2002 Dividends per share in 2008 Expected return on the market Expected nominal risk-free return Stocks beta Stocks market price as of 1 January 2009 $2 $3 17% 9% 1.8 $19 $2.50 60.00% 25.00% 5.00% 12.00%

Using the constant growth dividend discount model, the stocks intrinsic value is closest to: A. $12.82. B. $18.29. C. $19.57. 12. The best characterization of the strong-form of efficient market hypothesis (EMH) with respect to the information set is that it encompasses: 3

A. both weak-form and semistrong-form hypotheses. B. neither weak-form nor semistrong-form hypothesis. C. the semistrong-form but not the weak-form hypothesis. 13. An analyst gathers the following information about a company: Common stock $1.50 par value Authorized -- Issued Additional paid-in-capital Retained earnings Treasury stock (500,000 shares) Current price per share The price-to-book (P/B) ratio of the company is closest to: A. 2.31. B. 3.50. C. 4.20. 14. An analyst gathers the following data about a company in order to estimate its price/earnings (P/E) ratio. Expected dividend payout ratio Return on equity Required rate of return Stocks current market price The P/E ratio is closest to: A. 6.7 x. B. 13.3 x. C. 20.0 x. 15. An analyst gathers the following data for a company to estimate the expected growth rate of dividends and use it as an input for valuing the companys common stock. Return on Assets 10% Profit Margin 5% Financial Leverage 1.67 Payout Ratio 25% The companys expected growth rate is closest to: A. 4.2%. B. 6.3%. C. 12.5%. 40% 15% 12% $75 5,000,000 shares 4,000,000 shares $20,000,000 $5,000,000 $10,000,000 $21