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Chapter 7 The Stock Market, the Theory of Rational Expectations, and the Efficient Markets Hypothesis 239

10)

The value of any investment is found by

(a)

computing the present value of all future sales.

(b)

computing the present value of all future liabilities.

(c)

computing the future value of all sales.

(d)

computing the present value of all future cash flows.

(e)

computing the future value of all future expenses.

Answer:

Question Status: New

11)

In the one-period valuation model, the value of an investment depends upon

(a)

only the present value of the expected sales price.

(b)

only the present value of the future dividends.

(c)

the actual value of the dividends and expected sales price received in one year.

(d)

the future value of dividends and the actual sales price.

(e)

the present value of both dividends and the expected sales price.

Answer:

Question Status: New

12)

In the one-period valuation model, the current stock price increases if

(a)

the expected sales price increases.

(b)

the expected sales price falls.

(c)

the required return increases.

(d)

dividends are cut.

(e)

both (a) and (c) occur.

Answer:

Question Status: New

13)

In the one-period valuation model, an increase in the required return

(a)

increases the expected sales price of a stock.

(b)

reduces the dividend payment.

(c)

reduces the expected sales price of a stock.

(d)

reduces the current price of a stock.

(e)

increases the current price of a stock.

Answer:

Question Status: New

14)

Using the one-period valuation model, assuming a year-end dividend of $0.11, an expected sales price of $110, and a required rate of return of 10%, the current price of the stock would be

(a)

$110.11.

(b)

$121.12.

(c)

$100.00.

(d)

$100.10

(e)

$100.11

Answer:

Question Status: New

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