Question 1
McLaughlin Inc.’s stock has a required rate of return of 11.8%, and it sells for $72.50 per share. McLaughlin’s dividend is expected to grow at a constant rate of 7.9% per year. What is the expected year-end dividend, D1?
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$2.83
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$3.15
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$3.39
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$3.62
Question 2
Most studies of stock market efficiency suggest that the stock market is highly efficient in the strong form. Based on these findings, which of the following statements is correct?
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Managers who have inside information that is not available to the public cannot consistently earn abnormal returns, i.e., returns that are higher than those predicted by the SML.
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The stock price for a company has been decreasing for the past 3 months. Based on this information, it must be true that the stock price will also decrease during the current month.
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Information you read on a financial website such as Yahoo Finance today can be used to select stocks that will consistently beat the market.
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Information disclosed in companies’ most recent annual reports can be used to consistently beat the market.
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