Part 1, True () or False (F), 52 points, 2 points each. Put your answers in the
ID: 2787611 • Letter: P
Question
Part 1, True () or False (F), 52 points, 2 points each. Put your answers in the colum to the stck woulda 1. Given the relationship between P-E and expected growth, you would ex a higher P-E than Target stock. 2. Company A has a stock price of $10 and a market capitalization of $100 billion. Company B has a stock that Tesla stock would price of $100 and a market capitalization of $10 billion. This means that Company B is worth Company A. ompany A has a growth rate of 5% and Company B has a growth rate of 6%. Both companies have a more than required return of 8%. Company Amust havethe higherdividend yield. 4, Stock A has a constant growth rate of 2% and Stock B has constant growth rate of 5% Both stocks have a dividend yield of 7%. Stock A musthave a higherrequiredreturn. 5. The capital gains yield can never be negative. 6. The dividend growth rate can never be zera 7. Bonds represent ownership in a firm, stocks do not. 8. According to the constant dividend growth model, the capital gains yield is the same as the dividend 9. Bonds mature, stocks do not. 10. High P.E ratios are usually associated with high-growth stocks 11 Stocks are generally less risky than bonds 12. According to the constant dividend growth model, the dividend yield is the same as the capital gains 13. Cash flows to stockholders are promised, cash flows to bondholders are not. 14. The dividend yield must always be positive. 15. The value of a 16. The value Browth rate share of stock is equal to the future value of the dividend payments plus the future price of a share of stock is equal to the price plus the future value of the dividends not pay dividends MUST have a lower price than a stock that pays dividends 18. The dividend yield can never be negative. The value of a share of stock is equal to the present value of all future cash flows related to the stock. TOTAL value of a company's stock is equal to the price per share times the number of shares outstanding 20. The the constant dividend growth model, the constant growth rate is the same as the dividend ld tock with a P-E of 20 and a PEG of 1 is a better value than a stock with a P-E of 1 and a PEG of 20Explanation / Answer
4.
Required rate in Constant growth model is calculated by summation of dividend yield and Growth rate. if dividend yield of both stock is equal then required return stock with higher growth rate owuld be higher. So, Required return of stock B would be higher.
Statement is false.
5.
if stock price decline below purchase price, then capital gain yield will ne negative.
Statement is false.
6.
Dividend growth rate can be zero or even negative also, depends on the performance of comapny.
Statement is false.
7.
Stock represent ownership in firm with voting right in firm. Bond does not represent ownership in firm.
Statement is false.
8.
in constant growth model, capital gain is equal to growth rate of teh dividend .
State is true.
9.
All bond issued with specified period of time, so all bond have soem maturity date. Stock does not have any maturity date.
Statement is true.