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Chapter 7 The Stock Market, the Theory of Rational Expectations, and the Efficient Markets Hypothesis 241

Question Status: New

20)

In the generalized dividend model, a future sales price far in the future does not affect the current stock price because

(a)

the present value cannot be computed.

(b)

the present value is almost zero.

(c)

the sales price does not affect the current price.

(d)

the stock may never be sold.

(e)

the company may suffer bankruptcy.

Answer:

Question Status: New

21)

In the generalized dividend model, the current stock price is the sum of

(a)

the actual value of the future dividend stream.

(b)

the present value of the future dividend stream.

(c)

the present value of the future dividend stream plus the actual future sales price.

(d)

the future value of the dividend stream plus the sales price.

(e)

the present value of the future sales price.

Answer:

Question Status: New

22)

Using the Gordon growth model, a stock’s price will increase if

(a)

dividends are reduced.

(b)

the growth rate of dividends falls.

(c)

the required rate of return rises.

(d)

the expected sales price rises.

(e)

the dividend growth rate increases.

Answer:

Question Status: New

23)

Using the Gordon growth model, a stock’s price will increase if

(a)

the dividend growth rate increases.

(b)

the future sales price increases.

(c)

the required rate of return increases.

(d)

all of the above occur.

(e)

both (a) and (b) of the above.

Answer:

Question Status: New

24)

Using the Gordon growth model, a stock’s price will increase if

(a)

the future sales price falls.

(b)

the required rate of return falls.

(c)

the dividend growth rate falls.

(d)

the current dividend falls.

(e)

none of the above.

Answer:

Question Status: New

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