BUS 401 Week 2 Quiz Complete A+ Answer

Question 1.1. GMX Resources, an independent oil and gas exploration and production company, has a 9.25% preferred stock outstanding, which pays an annual dividend of $2.3125. If investors require a return of 15% on

small companies in this sector, what will this preferred stock sell for? (Points : 1)

$14.11$14.72

$15.41

$28.58

Question 2.2. Zeta Corporation just paid a $2.00 dividend. Analysts believe that Zeta Corporation’s dividend will grow by 20% next year, and then settle into a constant growth regime at 5% per year into the future. If

investors assign a required rate of return of 12% to Zeta’s stock, what should the stock sell for today? (Points : 1)

$30.00$32.14

$34.29

$36.00

Question 3.3. We would expect that, all else being equal, investors would pay more for a stock with a higher dividend growth rate. Assume a stock has just paid a $2.00-per-share dividend. Analysts believe that future

dividends will grow at a 6% rate. The required rate of return is 11%. What would the stock price be? (Points : 1)

$29.71$31.71

$40.00

$42.40

Question 4.4. $10,000 will be received exactly 10 years from today. The following statement is true: (Points : 1)

If the interest rate increases, so does the present value of the $10,000.If the interest rate increases, the present value of the $10,000 decreases.

It is worth $10,000 today.

It will have a present value greater than $10,000.

Question 5.5. In an amortized loan, the principal portion: (Points : 1)

increases with every payment and is zero with the last payment.increases with every payment and completely repays the loan with the last payment.

increases with every payment but at a decreasing rate.

does not change with every payment.

Question 6.6. Simple interest means that: (Points : 1)

the interest rate is the same every period.the dollar amount of interest is the same every period.

interest is only paid once a year.

the compounding periods are annual.

Question 7.7. Compounding means that: (Points : 1)

dollar interest the first year is multiplied by the number of years to get total interest.the same dollar amount of interest is paid each period.

interest is paid on interest earned in earlier periods.

the rate of interest grows over time.

Question 8.8. The name “annuity” suggests annual payments, but in fact we apply the term to: (Points : 1)

any set of payments of the same dollar amount irrespective of timing.any set of monthly payments.

any set of regularly spaced payments of the same dollar amount.

any set of multiple payments.

Question 9.9. Which of the following is NOT true of preferred stock? (Points : 1)

Preferred stock generally pays a fixed dividend.Preferred stock is a perpetuity.

Dividends on preferred stock are tax deductible.

Preferred stock dividends have a higher priority than common stock dividends.

Question 10.10. Suppose a zero-coupon bond is selling for $614.00 today. It promises to pay $1,000 in exactly 10 years with annual compounding. Its annual rate of return would be about ____. (Points : 1)

4%5%

6%

7%

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