Last year you purchased a share for GHS 2.50. You have received a dividend of GHS 0.75. The share…

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  1. Last year you purchased a share for GHS 2.50. You have received a dividend of GHS 0.75. The share now sells at GHS 2.70. Your holding period return is
    1. 7.50%
    2. 11.00%
    3. 11.50%
    4. 12.00%
    5. 13.50%

The following information is to be used to answer questions 3-5

You are given information about the returns for shares of company A and B

Year

Return (A)

Return (B)

1

10%

-10%

2

13%

15%

3

21%

0%

4

24%

22%

5

25%

18%

6

22%

24%
  1. The standard deviation of returns for A and B are respectively
    1. 6.2%; 10.5%
    2. 5.8%; 13.5%
    3. 6.2%; 12.8%
    4. 6.2%; 13.5%
    5. 6.5%; 14.5%
  2. Beta is a measure ___________ risk.
    1. total
    2. non-systematic
    3. market
    4. fundamental
    5. diversifiable
  3. A security that has a beta greater than 1 is______
  1. defensive
  2. riskier than the average share
  3. lending
  4. borrowing
  5. relative
  1. A firm unexpectedly decreases its dividend payment and its stock price falls. The information content effects of this decision at least partially explains the fall in the stock price since
    1. An unexpected decrease in dividends means management is signaling that the firm has no positive NPV projects in which to invest
    2. Investors will always react unfavorably to changes in dividends
    3. Investors react to the change as new information regarding expected future dividends
    4. This unexpected decrease may likely be viewed as an attempt by management to manipulate the stock price
    5. Unexpected changes in dividends will not affect stock prices if the firm has a written dividend policy
  2. If a firm wishes to have enough funds to satisfy its capital budgeting needs and to maintain a target debt-to-equity ratio it would likely be best to follow a policy of paying__________
    1. an extra dividend
    2. a special dividend
    3. a liquidating dividend
    4. a relative dividend
    5. a residual dividend
  3. BDJ has 31,000 shares of stock outstanding with a market price of GHS 15 per share. If net income for the year is GHS 15,500,000 and the retention rate is 80%, what is the dividend per share on BDJ Ltd’s share.
    1. GHS 68
    2. GHS 83
    3. GHS 100 D) GHS 125 E) GHS 189
  4. The interest shield of a firm
    1. Is the tax benefit a firm derives from paying interest
    2. Will decrease as the corporate income tax rate is increased
    3. Is the yield-to-maturity on a firm’s bonds multiplied by the market value of bonds outstanding and by the firm’s tax rate
    4. Is equal to the coupon interest rate of the firm’s debt
    5. Will be positive at all levels of EBIT
  5. When choosing a capital structure, the objective of the firm should be to
  6. Choose the one that maximizes the current value of the firm’s bonds
    1. Choose the one that minimizes the value of the firm
    2. Choose the one that minimizes the firm’s Weighted Average Cost of Capital (WAC
    3. Choose the one that results in the largest interest tax shield
    4. Choose any capital structure since capital structure is always irrelevant