econ quiz

Question 11 pts

Let Rt be the yield on debt at time t, ex Dt+1 be the expected dividend payment and ex Pt+1 be the expected price of the stock at time t+1, and Pt is the current price of the stock. Then Rt = (ex Dt+1 + ex Pt+1 – Pt)/Pt is

the definition of the rate of return

an equilibrium condition

is the present value of the dividend flow

the future value of the bond

Flag this QuestionQuestion 21 pts

If the interest rate is rising and stock prices are simultaneously rising, then according to the fundamental theory of stock pricing

The future price of the stock must be falling

Expected dividends of firms must be rising

There must be irrational agents in the market

The expected dividends of firms must be falling

Flag this QuestionQuestion 31 pts

Consider the stable growth or steady state model of a stock price. If the price of the stock is $40 per share, the yield on the relevant bond is 6%, and the growth rate of dividends is expect to be 4%, then the current dividend growth rate will be (do not use a $, so 1.13, not $1.13)

Flag this QuestionQuestion 41 pts

Suppose everyone believes that an increase in the unemployment rate will lower dividend payments in the future. Suppose a week from tomorrow when the BLS announces the unemployment rate for March, it announces an increase, but stock prices do not change. Then this is evidence that

there are animal spirit agents in the market

that markets are not forward looking

the interest rate must have risen

people already knew that the unemployment rate would be higher

Flag this QuestionQuestion 51 pts

Assume the fundamental value theory of stock pricing holds. If you are a rational investor, and you own shares of Cintas stock, then

you expect to receive capital gains from holding this stock

there may be a bubble in the price of this stock

you may be shorting this stock

Cintas stock sells for the present value of its expected dividend stream

 

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