Question

I see someone said question 1 is missing something. It isnt, its a yes/no question. Its a "Intrinsic Value" question. If not enough information for question 1, skip it and do the other questions please

5 questions:

1.If the TB Pirates common stock is trading today at $15, should you buy it

A

Yes

B

No

2. You observe a stock price of $18.75. You expect a dividend growth rate of 5%, and the most recent dividend was $1.50. What is the required return?

A

11.23

B

13.4

C

15.2

3. What are some of the major characteristics of common stock?

4. What are some of the major characteristics of preferred stock?

5. Dividends are considered a debt for the corporation.

A

True

B

False

Answer 1

2.

Required Rate = 1.5(1.05)/18.75 + 0.05

Required Rate = 13.40%

Option B is correct

3.

Characterstics of Common Stock

• It gives representation in firm
• It comes with voting rights
• Returns on common stock is dependent on growth and profitability of the firm
• In event of liquidation, they have last representation in the firm
• Some firms pay regular dividends on common stock.

4.

Characterstics of Preferred Stock

• It has higher preference over common stock
• Higher dividend yields
• It has non voting feature
• I has callable feature in it

5

False

Explanation:

Dividends are not debt for firm, as they are not obligated to pay it.