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# Quiz2 1. Question: stock expects to pay a year-end dividend of \$2 a share (i.e.

, D1 = \$2; assume that last year's dividend has already been paid). The dividend is expected to fall 5% a year forever (i.e., g = -5%). The company's expected and required rate of return is 15%. Which of the following statements is most correct? A. The company's stock price is \$10. B. The company's expected dividend yield 5 years from now will be 20%. C. The company's stock price 5 years from now is expected to be \$7.74. D. Both answers B and C are correct. E. All of the above answers are correct. CORRECT Instructor Explanation: Statement E is the correct choice; all the statements are correct. Statement A is correct; Po = \$2/(.15+.05) = \$10. Statement B is correct; Div yields = D6/P5 or (\$2(.95)to the 5th power) = \$1.547562/\$7.74 = 20%. Statement C is correct; (\$10(.95)to the 5th power) = \$7.74. Points Received:6 of 6 Comments: 2. Question: Which of the following statements is most correct? A. If a stock's beta increased but its growth rate remained the same, then the new equilibrium price of the stock will be higher (assuming dividends continue to grow at the constant growth rate). B. Market efficiency says that the actual realized returns on all stocks will be equal to the expected rates of return. C. An implication of the semistrong form of the efficient markets CORRECT hypothesis is that you cannot consistently benefit from trading on information reported in the Wall Street Journal. D. Statements A and B are correct. E. All of the statements above are correct. Instructor Explanation: Statement C is correct; The other statements are false. If beta increased but g remained the same, the new stock price would be lower. Market efficiency says nothing abut the relationship between expected and realized rates of return. Points Received:0 of 6 Comments: