Part 1, True or False(F), 52 points, 2 points each. Put your answers in the colu
ID: 2787613 • Letter: P
Question
Part 1, True or False(F), 52 points, 2 points each. Put your answers in the column to the right 1.Given the relationship between P-E and expected growth, you would expect that Tesla stock would have a higher P-E than Target stock /company Ahas a stock price of $10 and a market capitalization of $100 billion. Company B has a stock 2. price of $100 and a market capitalization of $10 billion. This means that Company 8 is worth more than Company A Company A has a growth rate of 5% and Company B has a growth rate of 6%. Both companies have a required return of 8%. Company A must have the higher dividend yield. 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 must have a higher required return. l l 5. The capital gains yield can never be negative. 6. The dividend growth rate can never be zero. 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 growth rate. yield 13. Cash flows to stockholders are promised, cash flows to bondholders are not. 14. The dividend yield must always be positive.Explanation / Answer
Answer 11 False, stock are More riskier than bond since bond get fixed interest payment even if company does not generate profit whereas share holder receive dividend out of profit only
Answer 12 False, capital gain yield is due to price appreciation while dividend yield is due to dividend payment they are not same
Answer 13 False, Cash flow to bond holders are promised whereas cash flow to share holder are not promised since bond holder are promised interest every year
Answer 14 True, Dividend yield is dividend divided by price since dividend can not be negative, dividend yield is always positive