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TUTORIAL 7

EQUITY MARKETS AND STOCK VALUATION

1. What is the term describing the mode that computes the present !aue o" a stoc# 

 b$ di!iding ne%t $ear&s annua di!idend amount b$ the di""erence bet'een the

discount rate and the rate o" change in the annua di!idend amount(

). *toc# pricing mode.

B. +,uit$ pricing mode.

C. Di!idend gro'th mode.

D. -resent !aue mode.

2. Di!idend $ied can be de"ined as

). the current annua cash di!idend di!ided b$ the current mar#et price per share.

B. the current annua cash di!idend di!ided b$ the current boo# !aue per share.

C. ne%t $ear&s e%pected cash di!idend di!ided b$ the current mar#et price per share.

D. ne%t $ear&s e%pected cash di!idend di!ided b$ the current boo# !aue per 

share.

. Which one o" the "oo'ing t$pes o" securities has no priorit$ in a ban#ruptc$

 proceeding(

). Con!ertibe bond.

B. *enior debt.

C. Common stoc#.

D. -re"erred stoc#.

. Di!idend are best de"ined as

). Cash pa$ments to sharehoders.

B. Cash pa$ments to either bondhoders or sharehoders.

C. Cash or stoc# pa$ments to sharehoders.

D. Distributions o" stoc# to current sharehoders.

5. Mcheen Berhad common stoc# is seing "or M25 a share and has a di!idend

$ied o" .5 percent. What is the di!idend amount(

). M1.0

B. M1.15

C. M1.1

D. M11.25

33M4/F/6*4/)/MM/*B*B

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. Farm Fresh Berhad pa$s a constant annua di!idend o" M1.00 a share and

current$ ses "or M18.00 a share. What is the rate o" return(

). 5.5 percent

B. 5.9 percent

C. .5 percentD. 5.55 percent

33M4/F/6*4/)/MM/*B*B

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7. :uhati Berhad;s stoc# is seing "or M25.0 per share based on a 10 percent rate

o" return. What is the amount o" the ne%t annua di!idend i" the di!idends are

increasing b$ 1. percent annua$(

). M2.1B. M2.1

C. M.12

D. M1.5

8. Which one o" the "oo'ing 'i increase the current !aue o" a stoc#(

). Decrease in the di!idend gro'th rate

B. 1

B. M2.20 × =1.0>2

C. M2.20 × =1.0>

D. M2.20 × =1.0>

10. Which one o" the "oo'ing statements is CORRECT(

). From a ega perspecti!e? pre"erred stoc# is a "orm o" corporate e,uit$.

B. ) casses o" stoc# must ha!e e,ua !oting rights per share.

C. Common sharehoders eect the corporate directors 'hie the pre"erred

sharehoders !ote on mergers and ac,uisitions.

D. Di!idends are ta%@"ree income "or indi!idua in!estors.

11. -re"erred di!idends "u"i a criteria beo'? EXCEPT

). Must be paid be"ore di!idends can be paid to common stoc#hoders.

B.

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12. Ahis morning )mir Fi#ri purchased a stoc# that 'i pa$ an annua di!idend o" 

M1.90 per share ne%t $ear. e re,uire a 12 percent rate o" return and the annua

di!idend 'i increase at .5 percent annua$. What 'i be his capita gain be on

this stoc# i" he se it three $ears "rom no'(

1. uda Berhad has paid a constant annua di!idend o" M2.0 a share "or the past15 $ears. ecent$? the "irm announced that the di!idend 'i increase ne%t $ear 

 b$ 10 percent and 'i sta$ at the e!e through $ear three? a"ter 'hich time the

di!idends 'i increase b$ 2 percent annua$. Ahe re,uired return on this stoc# is

12 percent. What is the current !aue per share(

1. Murnia'an *dn. Bhd. paid an annua di!idend o" M1.0 per share ast $ear. Ahe

management ust announced that "uture di!idends 'i increase b$ 2.5 percent

annua$. What is the amount o" e%pected di!idend in di!idend $ear (

15. *amue Berhad pa$s a constant annua di!idend o" M1.25 per share. o' much

are $ou 'iing to pa$ "or one share i" $ou re,uire a 15 percent rate o" return(

1. Aur#ish Mansion *dn. Bhd. ust paid its annua di!idend o" M1.0. Ahe re,uired

return is 1 percent and di!idend gro'th rate is 2 percent. o' much is the !aue

o" this stoc# toda$(

17. ani DD Berhad is e%pected to pa$ its "irst annua di!idend o" M0.80 per share

each $ear "or three $ears "rom no'. *tarting in $ear si%? the compan$ is e%pected

to start increasing the di!idend b$ 2 percent per $ear. What is the !aue o" this

stoc# toda$ at a re,uired return o" 12 percent(

18. Ahe common stoc# o" :ason Berhad is !aued at M10.80 a share. Ahe compan$

increases its di!idend b$ 8 percent annua$ and e%pects its ne%t di!idend to be

M0.20 per share. What is the tota rate o" return on this stoc#(

19. Macaroon Deight ust paid its annua di!idend o" M1.5 a share. Ahe "irm

recent$ announced that a "uture di!idends 'i be increased b$ 2.8 percent

annua$. What is one share o" this stoc# 'orth to $ou i" $ou re,uire a 1 percent

rate o" return(

20. Current$? the common stoc# o" eron ri is seing "or M22 a share and has a

percent rate o" return. Ahe gro'th rate o" the di!idends is 1 percent annua$.What is the amount o" the ne%t annua di!idend(

21. *tar Arade stoc# is current$ seing "or M8.29 per share. Ahe mar#et re,uires a

1 percent return on the "irm&s stoc#.

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22. B Diamond *tore is a e'eer "irm. Ahe compan$ ust paid a M annua

di!idend? but management e%pects to reduce the pa$out b$ percent per $ear?

inde"inite$.