Basic Finance An Introduction To Financial Institutions 11th Edition By Herbert – Test Bank

1. The value of stock depends in part on future dividends and investors’ required return.
a. True
b. False
ANSWER: True
QUESTION TYPE: True / False

2. The return on an investment in stock depends on both dividends and capital gains.
a. True
b. False
ANSWER: True
QUESTION TYPE: True / False

3. The dividend‑growth model may be applied only if it is assumed that the growth in dividends will be constant.
a. True
b. False
ANSWER: False
QUESTION TYPE: True / False

4. The value of a stock should increase if investors’ required rate of return declines.
a. True
b. False
ANSWER: True
QUESTION TYPE: True / False

5. The dividend‑growth model assumes the firm will be liquidated at some specified time in the future.

a. True
b. False
ANSWER: False
QUESTION TYPE: True / False

6. Valuation of stock depends on past dividends.

a. True
b. False
ANSWER: False
QUESTION TYPE: True / False

7. If the valuation of a stock is $10 and its price is $13, the investor should establish a short position in the stock.
a. True
b. False
ANSWER: True
QUESTION TYPE: True / False

8. The required return for an investment in a stock increases if the firm’s beta declines.
a. True
b. False
ANSWER: False
QUESTION TYPE: True / False

9. An increase in the required return on the market will tend to decrease stock valuations.
a. True
b. False
ANSWER: True
QUESTION TYPE: True / False

10. The P/E ratio measures a stock’s price relative to the firm’s equity.

a. True
b. False
ANSWER: False
QUESTION TYPE: True / False

11. If management increases a firm’s dividends, its growth rate will also increase.
a. True
b. False
ANSWER: False
QUESTION TYPE: True / False