Multiple choice

1. Seven-Seas Co. has paid a dividend $3 per share out of earnings of $5 per share. If the book value per share is $40 and the market price is 52.50 per share, calculate the required rate of return on the stock.  

a. 12% 

b. 11% 

c. 5% 

d. 6% 

2. River Co. has paid a dividend $2 per share out of earnings of $4 per share. If the book value per share is $25 and is currently selling for $40 per share, calculate the required rate of return on the stock.  

a. 15.2% 

b. 7.2% 

c. 14.7% 

d. 13.4% 

3. Lake Co. has paid a dividend $3 per share out of earnings of $5 per share. If the book value per share is $40, what is the expected growth rate in dividends?  

a. 7.5% 

b. 8% 

c. 12.5% 

d. 5% 

4. The growth rate in dividends is a function of two ratios. They are:  

a. ROA and ROE 

b. Dividend yield and growth rate in dividends 

c. ROE and the Retention Ratio 

d. Book value per share and EPS