Which of the following is a true statement regarding publicly tradedstocks and bonds?O A share of common stock is generally easier to value in practice than a bond.O Market interest rates and bond prices move in the same direction.O The constant dividend growth model can be used to value stocks only if the dividend growthrate remains constant.O The price of a stock is greater than the present value of all future dividends.

The constant dividends model is a stock valuation model that assumes that the dividends of a company…

Answered: Which of the following is a true…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

One way to model an option with dividends in the binomial framework is for the stock price minus the present value of the dividends to grow by the up and down factors. True or False?
The yield to maturity for a bond is equivalent to the market's required return on the bond and is based on risk but the required return on a share of stock ks not based on risk True False
Give typing answer with explanation and conclusion Preferred equity is stock with dividend __ over __ stock, normally with a __ dividend rate, and sometimes __ voting rights. Word bank: common without priority with insignificance variable fixed regular
Index arbitrage keeps the prices of stocks and stock index futures in equilibrium. True False
Defining common stock yield and its importance to investors Define and explain a bond yield's importance. What makes a stock investor different from a bond investor? What are their expectations? What are investors' alternatives if no common dividend is paid? What alternatives do bondholders have if interest payments are missed?
Which of the following is the best reason why the price-earnings method is often used by investors to estimate the fair price of a stock? a) Because the earning multiples are easily found in online financial databases. b) Earnings per share is a known amount that is related to the payment of future dividends. c) Because the price-earnings method gives the same answer as the constant growth method and is easier to compute. d) The price-earnings method has been shown to provide the most accurate price estimate.
[S1] If an individual stock's beta is higher than 1, that stock is riskier than the market. [S2] In determining the estimated cost of equity, the CAPM explicitly recognizes a firm’s risk but it does not rely on any dividend assumptions or growth of dividends.a. both are trueb. both are falsec. S1 is trued. S2 is true
Assume now that in our usual setting the stock has continuous dividends. If the interest rate is r = 0.06 and the dividends rate is q = 0.03, will the option A be greater or smaller than 0.5?
A stock that does not pay a dividend must have a capital gains yield that is equal to the required return. Select one: True False
Stocks A and B have the same price and are in equilibrium, but Stock A has the higher required rate of return. Which of the following statements is CORRECT? a. Stock B must have a higher dividend yield than Stock A. b. Stock A must have a higher dividend yield than Stock B. c. If Stock A has a higher dividend yield than Stock B, its expected capital gains yield must be lower than Stock B's. d. Stock A must have both a higher dividend yield and a higher capital gains yield than Stock B. e. If Stock A has a lower dividend yield than Stock B, its expected capital gains yield must be higher than Stock B's.
2
Question 1. Let St be the current price of a stock that pays no dividends. a)Let rbid be the interest rate at which one can invest/lend money, and roff be theinterest rate at which one can borrow money, rbid≤roff. Both rates are continuously compounded. Using arbitrage arguments, find upper and lower bounds for the forwardprice of the stock for a forward contract with maturity T > t. b)How does your answer change if the stock itself has bid price St,bid and offer price St,off?

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