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Chapter 09 - Stock Valuation
Chapter 09
How to Value Stocks
Multiple Choice Questions
1. The stock valuation model that determines the current stock price by dividing the next
annual dividend amount by the excess of the discount rate less the dividend growth rate is
called the _____ model.
A. zero growth
B. dividend growth
C. capital pricing
D. earnings capitalization
E. differential growth
2. Next year's annual dividend divided by the current stock price is called the:
A. yield to maturity.
B. total yield.
C. dividend yield.
D. capital gains yield.
E. earnings yield.
3. The rate at which a stock's price is expected to appreciate (or depreciate) is called the
_____ yield.
A. current
B. total
C. dividend
D. capital gains
E. earnings
4. A form of equity which receives no preferential treatment in either the payment of

dividends or in bankruptcy distributions is called _____ stock.
A. dual class
B. cumulative
C. deferred
D. preferred
E. common
9-1
5. Payments made by a corporation to its shareholders, in the form of either cash, stock or
payments in kind, are called:
A. retained earnings.
B. net income.
C. dividends.
D. redistributions.
E. infused equity.
6. The constant dividend growth model is:

A. generally used in practice because most stocks have a constant growth rate.
B. generally used in practice because the historical growth rate of most stocks is constant.
C. generally not used in practice because most stocks grow at a non constant rate.
D. generally not used in practice because the constant growth rate is usually higher than the
required rate of return.
E. based on the assumption Dow 30 represents a good estimate of the market index.
7. The constant dividend growth model:

I. assumes that dividends increase at a constant rate forever.
II. can be used to compute a stock price at any point of time.
III. states that the market price of a stock is only affected by the amount of the dividend.
IV. considers capital gains but ignores the dividend yield.
A. I only
B. II only
C. III and IV only
D. I and II only
E. I, II, and III only
8. The underlying assumption of the dividend growth model is that a stock is worth:
A. the same amount to every investor regardless of their desired rate of return.
B. the present value of the future income which the stock generates.
C. an amount computed as the next annual dividend divided by the market rate of return.
D. the same amount as any other stock that pays the same current dividend and has the same
E. an amount computed as the next annual dividend divided by the required rate of return.
9-2
9. Assume that you are using the dividend growth model to value stocks. If you expect the
market rate of return to increase across the board on all equity securities, then you should also
expect the:
A. market values of all stocks to increase, all else constant.
B. market values of all stocks to remain constant as the dividend growth will offset the
increase in the market rate.
C. market values of all stocks to decrease, all else constant.
D. stocks that do not pay dividends to decrease in price while the dividend-paying stocks
maintain a constant price.
E. dividend growth rates to increase to offset this change.
10. Latcher's Inc. is a relatively new firm that is still in a period of rapid development. The
company plans on retaining all of its earnings for the next six years. Seven years from now,
the company projects paying an annual dividend of $.25 a share and then increasing that
amount by 3% annually thereafter. To value this stock as of today, you would most likely
determine the value of the stock _____ years from today before determining today's value.
A. 4
B. 5
C. 6
D. 7
E. 8
11. The Robert Phillips Co. currently pays no dividend. The company is anticipating
dividends of $0, $0, $0, $.10, $.20, and $.30 over the next 6 years, respectively. After that, the
company anticipates increasing the dividend by 4% annually. The first step in computing the
value of this stock today, is to compute the value of the stock when it reaches constant growth
in year:
A. 3
B. 4
C. 5
D. 6
E. 7
9-3
12. Differential growth refers to a firm that increases its dividend by:
A. three or more percent per year.
B. a rate which is most likely not sustainable over an extended period of time.
C. a constant rate of two or more percent per year.
D. $.10 or more per year.
E. an amount in excess of $.10 a year.
13. The total rate of return earned on a stock is comprised of which two of the following?
I. current yield
II. yield to maturity
III. dividend yield
IV. capital gains yield
A. I and II only
B. I and IV only
C. II and III only
D. II and IV only
E. III and IV only
14. Fred Flintlock wants to earn a total of 10% on his investments. He recently purchased
shares of ABC stock at a price of $20 a share. The stock pays a $1 a year dividend. The price
of ABC stock needs to _____ if Fred is to achieve his 10% rate of return.
A. remain constant
B. decrease by 5%
C. increase by 5%
D. increase by 10%
E. increase by 15%
15. The Scott Co. has a general dividend policy whereby it pays a constant annual dividend of
$1 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:
A. must always show a current liability of $1,000 for dividends payable.
B. is obligated to continue paying $1 per share per year.
C. will be declared in default and can face bankruptcy if it does not pay $1 per year to each
shareholder on a timely basis.
D. has a liability which must be paid at a later date should the company miss paying an annual
dividend payment.
E. must still declare each dividend before it becomes an actual company liability.
9-4
16. The value of common stock today depends on:

A. the expected future holding period and the discount rate.
B. the expected future dividends and the capital gains.
C. the expected future dividends, capital gains and the discount rate.
D. the expected future holding period and capital gains.
E. None of the above.
17. The closing price of a stock is quoted at 22.87, with a P/E of 26 and a net change of 1.42.
Based on this information, which one of the following statements is correct?
A. The closing price on the previous day was $1.42 higher than today's closing price.
B. A dealer will buy the stock at $22.87 and sell it at $26 a share.
C. The stock increased in value between yesterday's close and today's close by $.0142.
D. The earnings per share are equal to 1/26th of $22.87.
E. The earnings per share have increased by $1.42 this year.
18. A stock listing contains the following information: P/E 17.5, closing price 33.10, dividend
.80, YTD% chg 3.4, and net chg - .50. Which of the following statements are correct given
this information?
I. The stock price has increased by 3.4% during the current year.
II. The closing price on the previous trading day was $32.60.
III. The earnings per share are approximately $1.89.
IV. The current yield is 17.5%.
A. I and II only
B. I and III only
C. II and III only
D. III and IV only
E. I, III, and IV only
19. The discount rate in equity valuation is composed entirely of:

A. the dividends paid and the capital gains yield.
B. the dividend yield and the growth rate.
C. the dividends paid and the growth rate.
D. the capital gains earned and the growth rate.
E. the capital gains earned and the dividends paid.
9-5
20. The net present value of a growth opportunity, NPVGO, can be defined as:
A. the initial investment necessary for a new project.
B. the net present value per share of an investment in a new project.
C. a continual reinvestment of earnings when r < g.
D. a single period investment when r > g.
21. Angelina's made two announcements concerning its common stock today. First, the
company announced that its next annual dividend has been set at $2.16 a share. Secondly, the
company announced that all future dividends will increase by 4% annually. What is the
maximum amount you should pay to purchase a share of Angelina's stock if your goal is to
earn a 10% rate of return?
A. $21.60
B. $22.46
C. $27.44
D. $34.62
E. $36.00
22. How much are you willing to pay for one share of stock if the company just paid an $.80
annual dividend, the dividends increase by 4% annually and you require an 8% rate of return?
A. $19.23
B. $20.00
C. $20.40
D. $20.80
E. $21.63
23. Lee Hong Imports paid a $1.00 per share annual dividend last week. Dividends are
expected to increase by 5% annually. What is one share of this stock worth to you today if the
appropriate discount rate is 14%?
A. $7.14
B. $7.50
C. $11.11
D. $11.67
E. $12.25
9-6
24. Majestic Homes' stock traditionally provides an 8% rate of return. The company just paid
a $2 a year dividend which is expected to increase by 5% per year. If you are planning on
buying 1,000 shares of this stock next year, how much should you expect to pay per share if
the market rate of return for this type of security is 9% at the time of your purchase?
A. $48.60
B. $52.50
C. $55.13
D. $57.89
E. $70.00
25. Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of
$2.00 a share. The company has promised to maintain a constant dividend. How much are you
willing to pay for one share of this stock if you want to earn a 12% return on your equity
investments?
A. $10.00
B. $13.33
C. $16.67
D. $18.88
E. $20.00
26. Martin's Yachts has paid annual dividends of $1.40, $1.75, and $2.00 a share over the past
three years, respectively. The company now predicts that it will maintain a constant dividend
since its business has leveled off and sales are expected to remain relatively constant. Given
the lack of future growth, you will only buy this stock if you can earn at least a 15% rate of
return. What is the maximum amount you are willing to pay to buy one share today?
A. $10.00
B. $13.33
C. $16.67
D. $18.88
E. $20.00
9-7
27. The common stock of Eddie's Engines, Inc. sells for $25.71 a share. The stock is expected
to pay $1.80 per share next month when the annual dividend is distributed. Eddie's has
established a pattern of increasing its dividends by 4% annually and expects to continue doing
so. What is the market rate of return on this stock?
A. 7%
B. 9%
C. 11%
D. 13%
E. 15%
28. The current yield on Alpha's common stock is 4.8%. The company just paid a $2.10
dividend. The rumor is that the dividend will be $2.205 next year. The dividend growth rate is
expected to remain constant at the current level. What is the required rate of return on Alpha's
stock?
A. 10.04%
B. 16.07%
C. 21.88%
D. 43.75%
E. 45.94%
29. Martha's Vineyard recently paid a $3.60 annual dividend on its common stock. This
dividend increases at an average rate of 3.5% per year. The stock is currently selling for
$62.10 a share. What is the market rate of return?
A. 2.5%
B. 3.5%
C. 5.5%
D. 6.0%
E. 9.5%
9-8
30. Bet'R Bilt Bikes just announced that its annual dividend for this coming year will be $2.42
a share and that all future dividends are expected to increase by 2.5% annually. What is the
market rate of return if this stock is currently selling for $22 a share?
A. 9.5%
B. 11.0%
C. 12.5%
D. 13.5%
E. 15.0%
31. Shares of common stock of the Samson Co. offer an expected total return of 12%. The
dividend is increasing at a constant 8% per year. The dividend yield must be:
A. -4%.
B. 4%.
C. 8%.
D. 12%.
E. 20%.
32. The common stock of Grady Co. had an 11.25% rate of return last year. The dividend
amount was $.70 a share which equated to a dividend yield of 1.5%. What was the rate of
price appreciation on the stock?
A. 1.50%
B. 8.00%
C. 9.75%
D. 11.25%
E. 12.75%
33. Weisbro and Sons' common stock sells for $21 a share and pays an annual dividend that
increases by 5% annually. The market rate of return on this stock is 9%. What is the amount
of the last dividend paid by Weisbro and Sons?
A. $.77
B. $.80
C. $.84
D. $.87
E. $.88
9-9
34. The common stock of Energizer's pays an annual dividend that is expected to increase by
10% annually. The stock commands a market rate of return of 12% and sells for $60.50 a
share. What is the expected amount of the next dividend to be paid on Energizer's common
stock?
A. $.90
B. $1.00
C. $1.10
D. $1.21
E. $1.33
35. The Reading Co. has adopted a policy of increasing the annual dividend on its common
stock at a constant rate of 3% annually. The last dividend it paid was $0.90 a share. What will
the company's dividend be in six years?
A. $0.90
B. $0.93
C. $1.04
D. $1.07
E. $1.11
36. A stock pays a constant annual dividend and sells for $31.11 a share. If the dividend yield
of this stock is 9%, what is the dividend amount?
A. $1.40
B. $1.80
C. $2.20
D. $2.40
E. $2.80
37. You have decided that you would like to own some shares of GH Corp. but need an
expected 12% rate of return to compensate for the perceived risk of such ownership. What is
the maximum you are willing to spend per share to buy GH stock if the company pays a
constant $3.50 annual dividend per share?
A. $26.04
B. $29.17
C. $32.67
D. $34.29
E. $36.59
9-10
38. Turnips and Parsley common stock sells for $39.86 a share at a market rate of return of
9.5%. The company just paid its annual dividend of $1.20. What is the rate of growth of its
dividend?
A. 5.2%
B. 5.5%
C. 5.9%
D. 6.0%
E. 6.3%
39. B&K Enterprises will pay an annual dividend of $2.08 a share on its common stock next
year. Last week, the company paid a dividend of $2.00 a share. The company adheres to a
constant rate of growth dividend policy. What will one share of B&K common stock be worth
ten years from now if the applicable discount rate is 8%?
A. $71.16
B. $74.01
C. $76.97
D. $80.05
E. $83.25
40. Wilbert's Clothing Stores just paid a $1.20 annual dividend. The company has a policy
whereby the dividend increases by 2.5% annually. You would like to purchase 100 shares of
stock in this firm but realize that you will not have the funds to do so for another three years.
If you desire a 10% rate of return, how much should you expect to pay for 100 shares when
you can afford to buy this stock? Ignore trading costs.
A. $1,640
B. $1,681
C. $1,723
D. $1,766
E. $1,810
9-11
41. The Merriweather Co. just announced that it will pay a dividend next year of $1.60 and is
establishing a policy whereby the dividend will increase by 3.5% annually thereafter. How
much will one share be worth five years from now if the required rate of return is 12%?
A. $21.60
B. $22.36
C. $23.14
D. $23.95
E. $24.79
42. The Bell Weather Co. is a new firm in a rapidly growing industry. The company is
planning on increasing its annual dividend by 20% a year for the next four years and then
decreasing the growth rate to 5% per year. The company just paid its annual dividend in the
amount of $1.00 per share. What is the current value of one share if the required rate of return
is 9.25%?
A. $35.63
B. $38.19
C. $41.05
D. $43.19
E. $45.81
43. The Extreme Reaches Corp. last paid a $1.50 per share annual dividend. The company is
planning on paying $3.00, $5.00, $7.50, and $10.00 a share over the next four years,
respectively. After that the dividend will be a constant $2.50 per share per year. What is the
market price of this stock if the market rate of return is 15%?
A. $17.04
B. $22.39
C. $26.57
D. $29.08
E. $33.71
9-12
44. Can't Hold Me Back, Inc. is preparing to pay its first dividends. It is going to pay $1.00,
$2.50, and $5.00 a share over the next three years, respectively. After that, the company has
stated that the annual dividend will be $1.25 per share indefinitely. What is this stock worth to
you per share if you demand a 7% rate of return?
A. $7.20
B. $14.48
C. $18.88
D. $21.78
E. $25.06
45. NU YU announced today that it will begin paying annual dividends. The first dividend
will be paid next year in the amount of $.25 a share. The following dividends will be $.40,
$.60, and $.75 a share annually for the following three years, respectively. After that,
dividends are projected to increase by 3.5% per year. How much are you willing to pay to buy
one share of this stock if your desired rate of return is 12%?
A. $1.45
B. $5.80
C. $7.25
D. $9.06
E. $10.58
46. Now or Later, Inc. recently paid $1.10 as an annual dividend. Future dividends are
projected at $1.14, $1.18, $1.22, and $1.25 over the next four years, respectively. After that,
the dividend is expected to increase by 2% annually. What is one share of this stock worth to
you if you require an 8% rate of return on similar investments?
A. $15.62
B. $19.57
C. $21.21
D. $23.33
E. $25.98
9-13
47. The Red Bud Co. just paid a dividend of $1.20 a share. The company announced today
that it will continue to pay this constant dividend for the next 3 years after which time it will
discontinue paying dividends permanently. What is one share of this stock worth today if the
required rate of return is 7%?
A. $2.94
B. $3.15
C. $3.23
D. $3.44
E. $3.60
48. Bill Bailey and Sons pays no dividend at the present time. The company plans to start
paying an annual dividend in the amount of $.30 a share for two years commencing two years
from today. After that time, the company plans on paying a constant $1 a share dividend
indefinitely. Given a required return of 14%, what is the value of this stock?
A. $4.82
B. $5.25
C. $5.39
D. $5.46
E. $5.58
49. The Lighthouse Co. is in a downsizing mode. The company paid a $2.50 annual dividend
last year. The company has announced plans to lower the dividend by $.50 a year. Once the
dividend amount becomes zero, the company will cease all dividends permanently. The
required rate of return is 16%. What is one share of this stock worth?
A. $3.76
B. $4.08
C. $4.87
D. $5.13
E. $5.39
9-14
50. Mother and Daughter Enterprises is a relatively new firm that appears to be on the road to
great success. The company paid its first annual dividend yesterday in the amount of $.28 a
share. The company plans to double each annual dividend payment for the next three years.
After that time, it is planning on paying a constant $1.50 per share indefinitely. What is one
share of this stock worth today if the market rate of return on similar securities is 11.5%?
A. $9.41
B. $11.40
C. $11.46
D. $11.93
E. $12.43
51. BC ‘n D just paid its annual dividend of $.60 a share. The projected dividends for the next
five years are $.30, $.50, $.75, $1.00, and $1.20, respectively. After that time, the dividends
will be held constant at $1.40. What is this stock worth today at a 6% discount rate?
A. $20.48
B. $20.60
C. $21.02
D. $21.28
E. $21.43
52. Beaksley, Inc. is a very cyclical type of business which is reflected in its dividend policy.
The firm pays a $2.00 a share dividend every other year. The last dividend was paid last year.
Five years from now, the company is repurchasing all of the outstanding shares at a price of
$50 a share. At an 8% rate of return, what is this stock worth today?
A. $34.03
B. $37.21
C. $43.78
D. $48.09
E. $53.18
9-15
53. Last week, Railway Cabooses paid its annual dividend of $1.20 per share. The company
has been reducing the dividends by 10% each year. How much are you willing to pay to
purchase stock in this company if your required rate of return is 14%?
A. $4.50
B. $7.71
C. $10.80
D. $15.60
E. $27.00
54. Nu-Tek, Inc. is expecting a period of intense growth and has decided to retain more of its
earnings to help finance that growth. As a result it is going to reduce its annual dividend by
10% a year for the next three years. After that, it will maintain a constant dividend of $.70 a
share. Last month, the company paid $1.80 per share. What is the value of this stock if the
required rate of return is 13%?
A. $6.79
B. $7.22
C. $8.22
D. $8.87
E. $9.01
55. The Double Dip Co. is expecting its ice cream sales to decline due to the increased interest
in healthy eating. Thus, the company has announced that it will be reducing its annual
dividend by 5% a year for the next two years. After that, it will maintain a constant dividend
of $1 a share. Two weeks ago, the company paid a dividend of $1.40 per share. What is this
stock worth if you require a 9% rate of return?
A. $10.86
B. $11.11
C. $11.64
D. $12.98
E. $14.23
9-16
56. Which of the following amounts is closest to what should be paid for Overland common
stock? Overland has just paid a dividend of $2.25. These dividends are expected to grow at a
rate of 5% in the foreseeable future. The required rate of return is 11%.
A. $20.45
B. $21.48
C. $37.50
D. $39.38
E. $47.70
57. What would be the maximum an investor should pay for the common stock of a firm that
has no growth opportunities but pays a dividend of $1.36 per year? The next dividend will be
paid in exactly 1 year. The required rate of return is 12.5%.
A. $9.52
B. $10.88
C. $12.24
D. $17.00
E. None of the above
58. Mortgage Instruments Inc. is expected to pay dividends of $1.03 next year. The company
just paid a dividend of $1. This growth rate is expected to continue. How much should be paid
for Mortgage Instruments stock just after the dividend if the appropriate discount rate is 5%.
A. $20.00
B. $21.50
C. $34.75
D. $50.00
E. $51.50
59. The Felix Corp. projects to pay a dividend of $.75 next year and then have it grow at 12%
for the following 3 years before growing at 8% indefinitely thereafter. The equity has a
required return of 10% in the market. The price of the stock should be ____.
A. $9.38
B. $17.05
C. $41.67
D. $59.80
E. $62.38
9-17
60. If a company paid a dividend of $0.40 last month and it is expected to grow at 7% for the
next 6 years and then grow at 4% thereafter, the dividend expected in year 8 is ___.
A. $0.63
B. $0.65
C. $0.68
D. $0.69
E. $0.74
61. The Lory Company had net earnings of $127,000 this past year. Dividends of $38,100
were paid. The company's equity was $1,587,500. If Lory has 100,000 shares outstanding
with a current market price of $11.625 per share, and the growth rate is 5.6%, what is the
required rate of return?
A. 4.2%
B. 6%
C. 9%
D. 14%
E. None of the above
62. Doctors-On-Call, a newly formed medical group, just paid a dividend of $.50. The
company's dividend is expected to grow at a 20% rate for the next 5 years and at a 3% rate
thereafter. What is the value of the stock if the appropriate discount rate is 12%?
A. $8.08
B. $11.17
C. $14.22
D. $17.32
E. $30.90
63. A stock you are interested in paid a dividend of $1 last week. The anticipated growth rate
in dividends and earnings is 20% for the next year and 10% the year after that before settling
down to a constant 5% growth rate. The discount rate is 12%. Calculate the expected price of
the stock.
A. $17.20
B. $17.90
C. $18.20
D. $19.40
E. $19.75
9-18
64. A stock you are interested in paid a dividend of $1 last month. The anticipated growth rate
in dividends and earnings is 25% for the next 2 years before settling down to a constant 5%
growth rate. The discount rate is 12%. Calculate the expected price of the stock.
A. $15.38
B. $20.50
C. $21.04
D. $22.27
E. $26.14
65. Which of the following values is closest to the amount that should be paid for a stock that
will pay a dividend of $10 in one year and $11 in two years? The stock will be sold in 2 years
for an estimated price of $120. The appropriate discount rate is 9%.
A. $114.60
B. $119.43
C. $124.20
D. $129.50
E. $138.75
Essay Questions
66. What are the components of the required rate of return on a share of stock? Briefly explain
each component.
9-19
67. Explain whether it is easier to find the required return on a publicly traded stock or a
publicly traded bond, and explain why.
68. A number of publicly traded firms pay no dividends yet investors are willing to buy shares
in these firms. How is this possible? Does this violate our basic principle of stock valuation?
Explain.
9-20
Chapter 09 How to Value Stocks Answer Key
Multiple Choice Questions
1. The stock valuation model that determines the current stock price by dividing the next
annual dividend amount by the excess of the discount rate less the dividend growth rate is
called the _____ model.
A. zero growth
B. dividend growth
C. capital pricing
D. earnings capitalization
E. differential growth
Difficulty level: Easy

Topic: DIVIDEND GROWTH MODEL
Type: DEFINITIONS
2. Next year's annual dividend divided by the current stock price is called the:
A. yield to maturity.
B. total yield.
C. dividend yield.
D. capital gains yield.
E. earnings yield.

Topic: DIVIDEND YIELD
Type: DEFINITIONS
9-21
3. The rate at which a stock's price is expected to appreciate (or depreciate) is called the
_____ yield.
A. current
B. total
C. dividend
D. capital gains
E. earnings

Topic: CAPITAL GAINS YIELD
Type: DEFINITIONS
4. A form of equity which receives no preferential treatment in either the payment of

dividends or in bankruptcy distributions is called _____ stock.
A. dual class
B. cumulative
C. deferred
D. preferred
E. common

Topic: COMMON STOCK
Type: DEFINITIONS
5. Payments made by a corporation to its shareholders, in the form of either cash, stock or
payments in kind, are called:
A. retained earnings.
B. net income.
C. dividends.
D. redistributions.
E. infused equity.

Topic: DIVIDENDS
Type: DEFINITIONS
9-22
6. The constant dividend growth model is:

A. generally used in practice because most stocks have a constant growth rate.
B. generally used in practice because the historical growth rate of most stocks is constant.
C. generally not used in practice because most stocks grow at a non constant rate.
D. generally not used in practice because the constant growth rate is usually higher than the
E. based on the assumption Dow 30 represents a good estimate of the market index.
Difficulty level: Medium

Topic: CONSTANT DIVIDEND GROWTH MODEL
Type: CONCEPTS
7. The constant dividend growth model:

I. assumes that dividends increase at a constant rate forever.
II. can be used to compute a stock price at any point of time.
III. states that the market price of a stock is only affected by the amount of the dividend.
IV. considers capital gains but ignores the dividend yield.
A. I only
B. II only
C. III and IV only
D. I and II only
E. I, II, and III only

Topic: CONSTANT DIVIDEND GROWTH MODEL
Type: CONCEPTS
8. The underlying assumption of the dividend growth model is that a stock is worth:
A. the same amount to every investor regardless of their desired rate of return.
B. the present value of the future income which the stock generates.
C. an amount computed as the next annual dividend divided by the market rate of return.
D. the same amount as any other stock that pays the same current dividend and has the same
E. an amount computed as the next annual dividend divided by the required rate of return.

Type: CONCEPTS
9-23
9. Assume that you are using the dividend growth model to value stocks. If you expect the
market rate of return to increase across the board on all equity securities, then you should also
expect the:
A. market values of all stocks to increase, all else constant.
B. market values of all stocks to remain constant as the dividend growth will offset the
increase in the market rate.
C. market values of all stocks to decrease, all else constant.
D. stocks that do not pay dividends to decrease in price while the dividend-paying stocks
maintain a constant price.
E. dividend growth rates to increase to offset this change.

Type: CONCEPTS
10. Latcher's Inc. is a relatively new firm that is still in a period of rapid development. The
company plans on retaining all of its earnings for the next six years. Seven years from now,
the company projects paying an annual dividend of $.25 a share and then increasing that
amount by 3% annually thereafter. To value this stock as of today, you would most likely
determine the value of the stock _____ years from today before determining today's value.
A. 4
B. 5
C. 6
D. 7
E. 8

Topic: DIFFERENTIAL GROWTH
Type: CONCEPTS
9-24
11. The Robert Phillips Co. currently pays no dividend. The company is anticipating
dividends of $0, $0, $0, $.10, $.20, and $.30 over the next 6 years, respectively. After that, the
company anticipates increasing the dividend by 4% annually. The first step in computing the
value of this stock today, is to compute the value of the stock when it reaches constant growth
in year:
A. 3
B. 4
C. 5
D. 6
E. 7

Type: CONCEPTS
12. Differential growth refers to a firm that increases its dividend by:
A. three or more percent per year.
B. a rate which is most likely not sustainable over an extended period of time.
C. a constant rate of two or more percent per year.
D. $.10 or more per year.
E. an amount in excess of $.10 a year.

Type: CONCEPTS
13. The total rate of return earned on a stock is comprised of which two of the following?
I. current yield
II. yield to maturity
III. dividend yield
IV. capital gains yield
A. I and II only
B. I and IV only
C. II and III only
D. II and IV only
E. III and IV only

Topic: DIVIDEND YIELD AND CAPITAL GAINS
Type: CONCEPTS
9-25
14. Fred Flintlock wants to earn a total of 10% on his investments. He recently purchased
shares of ABC stock at a price of $20 a share. The stock pays a $1 a year dividend. The price
of ABC stock needs to _____ if Fred is to achieve his 10% rate of return.
A. remain constant
B. decrease by 5%
C. increase by 5%
D. increase by 10%
E. increase by 15%

Topic: DIVIDEND YIELD AND CAPITAL GAINS
Type: CONCEPTS
15. The Scott Co. has a general dividend policy whereby it pays a constant annual dividend of
$1 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:
A. must always show a current liability of $1,000 for dividends payable.
B. is obligated to continue paying $1 per share per year.
C. will be declared in default and can face bankruptcy if it does not pay $1 per year to each
shareholder on a timely basis.
D. has a liability which must be paid at a later date should the company miss paying an annual
dividend payment.
E. must still declare each dividend before it becomes an actual company liability.

Topic: DIVIDENDS
Type: CONCEPTS
16. The value of common stock today depends on:

A. the expected future holding period and the discount rate.
B. the expected future dividends and the capital gains.
C. the expected future dividends, capital gains and the discount rate.
D. the expected future holding period and capital gains.

Topic: COMMON STOCK VALUES
Type: CONCEPTS
9-26
17. The closing price of a stock is quoted at 22.87, with a P/E of 26 and a net change of 1.42.
Based on this information, which one of the following statements is correct?
A. The closing price on the previous day was $1.42 higher than today's closing price.
B. A dealer will buy the stock at $22.87 and sell it at $26 a share.
C. The stock increased in value between yesterday's close and today's close by $.0142.
D. The earnings per share are equal to 1/26th of $22.87.
E. The earnings per share have increased by $1.42 this year.

Topic: STOCK MARKET REPORTING
Type: CONCEPTS
18. A stock listing contains the following information: P/E 17.5, closing price 33.10, dividend
.80, YTD% chg 3.4, and net chg - .50. Which of the following statements are correct given
this information?
I. The stock price has increased by 3.4% during the current year.
II. The closing price on the previous trading day was $32.60.
III. The earnings per share are approximately $1.89.
IV. The current yield is 17.5%.
A. I and II only
B. I and III only
C. II and III only
D. III and IV only
E. I, III, and IV only

Topic: STOCK QUOTE
Type: CONCEPTS
19. The discount rate in equity valuation is composed entirely of:

A. the dividends paid and the capital gains yield.
B. the dividend yield and the growth rate.
C. the dividends paid and the growth rate.
D. the capital gains earned and the growth rate.
E. the capital gains earned and the dividends paid.

Topic: DISCOUNT RATE
Type: CONCEPTS
9-27
20. The net present value of a growth opportunity, NPVGO, can be defined as:
A. the initial investment necessary for a new project.
B. the net present value per share of an investment in a new project.
C. a continual reinvestment of earnings when r < g.
D. a single period investment when r > g.

Topic: NPVGO
Type: CONCEPTS
21. Angelina's made two announcements concerning its common stock today. First, the
company announced that its next annual dividend has been set at $2.16 a share. Secondly, the
company announced that all future dividends will increase by 4% annually. What is the
maximum amount you should pay to purchase a share of Angelina's stock if your goal is to
earn a 10% rate of return?
A. $21.60
B. $22.46
C. $27.44
D. $34.62
E. $36.00

Topic: STOCK VALUE - CONSTANT GROWTH
Type: PROBLEMS
9-28
22. How much are you willing to pay for one share of stock if the company just paid an $.80
annual dividend, the dividends increase by 4% annually and you require an 8% rate of return?
A. $19.23
B. $20.00
C. $20.40
D. $20.80
E. $21.63

Type: PROBLEMS
23. Lee Hong Imports paid a $1.00 per share annual dividend last week. Dividends are
expected to increase by 5% annually. What is one share of this stock worth to you today if the
appropriate discount rate is 14%?
A. $7.14
B. $7.50
C. $11.11
D. $11.67
E. $12.25

Type: PROBLEMS
9-29
24. Majestic Homes' stock traditionally provides an 8% rate of return. The company just paid
a $2 a year dividend which is expected to increase by 5% per year. If you are planning on
buying 1,000 shares of this stock next year, how much should you expect to pay per share if
the market rate of return for this type of security is 9% at the time of your purchase?
A. $48.60
B. $52.50
C. $55.13
D. $57.89
E. $70.00

Type: PROBLEMS
25. Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of
$2.00 a share. The company has promised to maintain a constant dividend. How much are you
willing to pay for one share of this stock if you want to earn a 12% return on your equity
investments?
A. $10.00
B. $13.33
C. $16.67
D. $18.88
E. $20.00

Topic: STOCK VALUE - ZERO GROWTH
Type: PROBLEMS
9-30
26. Martin's Yachts has paid annual dividends of $1.40, $1.75, and $2.00 a share over the past
three years, respectively. The company now predicts that it will maintain a constant dividend
since its business has leveled off and sales are expected to remain relatively constant. Given
the lack of future growth, you will only buy this stock if you can earn at least a 15% rate of
return. What is the maximum amount you are willing to pay to buy one share today?
A. $10.00
B. $13.33
C. $16.67
D. $18.88
E. $20.00

Topic: STOCK VALUE - ZERO GROWTH
Type: PROBLEMS
27. The common stock of Eddie's Engines, Inc. sells for $25.71 a share. The stock is expected
to pay $1.80 per share next month when the annual dividend is distributed. Eddie's has
established a pattern of increasing its dividends by 4% annually and expects to continue doing
so. What is the market rate of return on this stock?
A. 7%
B. 9%
C. 11%
D. 13%
E. 15%

Topic: REQUIRED RETURN
Type: PROBLEMS
9-31
28. The current yield on Alpha's common stock is 4.8%. The company just paid a $2.10
dividend. The rumor is that the dividend will be $2.205 next year. The dividend growth rate is
expected to remain constant at the current level. What is the required rate of return on Alpha's
stock?
A. 10.04%
B. 16.07%
C. 21.88%
D. 43.75%
E. 45.94%

Type: PROBLEMS
29. Martha's Vineyard recently paid a $3.60 annual dividend on its common stock. This
dividend increases at an average rate of 3.5% per year. The stock is currently selling for
$62.10 a share. What is the market rate of return?
A. 2.5%
B. 3.5%
C. 5.5%
D. 6.0%
E. 9.5%

Type: PROBLEMS
9-32
30. Bet'R Bilt Bikes just announced that its annual dividend for this coming year will be $2.42
a share and that all future dividends are expected to increase by 2.5% annually. What is the
market rate of return if this stock is currently selling for $22 a share?
A. 9.5%
B. 11.0%
C. 12.5%
D. 13.5%
E. 15.0%

Type: PROBLEMS
31. Shares of common stock of the Samson Co. offer an expected total return of 12%. The
dividend is increasing at a constant 8% per year. The dividend yield must be:
A. -4%.
B. 4%.
C. 8%.
D. 12%.
E. 20%.

Topic: DIVIDEND YIELD VS. CAPITAL GAINS YIELD
Type: PROBLEMS
9-33
32. The common stock of Grady Co. had an 11.25% rate of return last year. The dividend
amount was $.70 a share which equated to a dividend yield of 1.5%. What was the rate of
price appreciation on the stock?
A. 1.50%
B. 8.00%
C. 9.75%
D. 11.25%
E. 12.75%
g = .1125 - .015 = .0975 = 9.75%

Topic: CAPITAL GAIN
Type: PROBLEMS
33. Weisbro and Sons' common stock sells for $21 a share and pays an annual dividend that
increases by 5% annually. The market rate of return on this stock is 9%. What is the amount
of the last dividend paid by Weisbro and Sons?
A. $.77
B. $.80
C. $.84
D. $.87
E. $.88

Topic: DIVIDEND AMOUNT
Type: PROBLEMS
9-34
34. The common stock of Energizer's pays an annual dividend that is expected to increase by
10% annually. The stock commands a market rate of return of 12% and sells for $60.50 a
share. What is the expected amount of the next dividend to be paid on Energizer's common
stock?
A. $.90
B. $1.00
C. $1.10
D. $1.21
E. $1.33

Type: PROBLEMS
35. The Reading Co. has adopted a policy of increasing the annual dividend on its common
stock at a constant rate of 3% annually. The last dividend it paid was $0.90 a share. What will
the company's dividend be in six years?
A. $0.90
B. $0.93
C. $1.04
D. $1.07
E. $1.11

Type: PROBLEMS
9-35
36. A stock pays a constant annual dividend and sells for $31.11 a share. If the dividend yield
of this stock is 9%, what is the dividend amount?
A. $1.40
B. $1.80
C. $2.20
D. $2.40
E. $2.80

Topic: CONSTANT DIVIDEND
Type: PROBLEMS
37. You have decided that you would like to own some shares of GH Corp. but need an
expected 12% rate of return to compensate for the perceived risk of such ownership. What is
the maximum you are willing to spend per share to buy GH stock if the company pays a
constant $3.50 annual dividend per share?
A. $26.04
B. $29.17
C. $32.67
D. $34.29
E. $36.59

Topic: CONSTANT DIVIDEND
Type: PROBLEMS
9-36
38. Turnips and Parsley common stock sells for $39.86 a share at a market rate of return of
9.5%. The company just paid its annual dividend of $1.20. What is the rate of growth of its
dividend?
A. 5.2%
B. 5.5%
C. 5.9%
D. 6.0%
E. 6.3%

Topic: GROWTH DIVIDEND
Type: PROBLEMS
39. B&K Enterprises will pay an annual dividend of $2.08 a share on its common stock next
year. Last week, the company paid a dividend of $2.00 a share. The company adheres to a
constant rate of growth dividend policy. What will one share of B&K common stock be worth
ten years from now if the applicable discount rate is 8%?
A. $71.16
B. $74.01
C. $76.97
D. $80.05
E. $83.25
Difficulty level: Challenge

Type: PROBLEMS
9-37
40. Wilbert's Clothing Stores just paid a $1.20 annual dividend. The company has a policy
whereby the dividend increases by 2.5% annually. You would like to purchase 100 shares of
stock in this firm but realize that you will not have the funds to do so for another three years.
If you desire a 10% rate of return, how much should you expect to pay for 100 shares when
you can afford to buy this stock? Ignore trading costs.
A. $1,640
B. $1,681
C. $1,723
D. $1,766
E. $1,810
P3 = $17.66; Purchase cost = 100  $17.66 = $1,766

Type: PROBLEMS
41. The Merriweather Co. just announced that it will pay a dividend next year of $1.60 and is
establishing a policy whereby the dividend will increase by 3.5% annually thereafter. How
much will one share be worth five years from now if the required rate of return is 12%?
A. $21.60
B. $22.36
C. $23.14
D. $23.95
E. $24.79
P5 = $22.36

Type: PROBLEMS
9-38
42. The Bell Weather Co. is a new firm in a rapidly growing industry. The company is
planning on increasing its annual dividend by 20% a year for the next four years and then
decreasing the growth rate to 5% per year. The company just paid its annual dividend in the
amount of $1.00 per share. What is the current value of one share if the required rate of return
is 9.25%?
A. $35.63
B. $38.19
C. $41.05
D. $43.19
E. $45.81
Dividends for the first 4 years are: $1.20, $1.44, $1.728, and $2.0736.

Topic: DIFFERENTIAL GROWTH DIVIDENDS
Type: PROBLEMS
43. The Extreme Reaches Corp. last paid a $1.50 per share annual dividend. The company is
planning on paying $3.00, $5.00, $7.50, and $10.00 a share over the next four years,
respectively. After that the dividend will be a constant $2.50 per share per year. What is the
market price of this stock if the market rate of return is 15%?
A. $17.04
B. $22.39
C. $26.57
D. $29.08
E. $33.71

Type: PROBLEMS
9-39
44. Can't Hold Me Back, Inc. is preparing to pay its first dividends. It is going to pay $1.00,
$2.50, and $5.00 a share over the next three years, respectively. After that, the company has
stated that the annual dividend will be $1.25 per share indefinitely. What is this stock worth to
you per share if you demand a 7% rate of return?
A. $7.20
B. $14.48
C. $18.88
D. $21.78
E. $25.06

Type: PROBLEMS
45. NU YU announced today that it will begin paying annual dividends. The first dividend
will be paid next year in the amount of $.25 a share. The following dividends will be $.40,
$.60, and $.75 a share annually for the following three years, respectively. After that,
dividends are projected to increase by 3.5% per year. How much are you willing to pay to buy
one share of this stock if your desired rate of return is 12%?
A. $1.45
B. $5.80
C. $7.25
D. $9.06
E. $10.58

Type: PROBLEMS
9-40
Another random document with
no related content on Scribd:
wandering about the bazaar talking to the keepers of the shops and
to each other. It seemed to the púsári that he had been walking for
hours, yet the bazaar appeared to be as interminable as ever. He
walked on as in a dream, for, in spite of the apparent bustle and
excitement around him, he could hear nothing. Stupefied by his
fearful position, he walked on mechanically, having now lost the
sense of fear, and feeling only a sort of vague wonder.
And now a raging thirst seized on the púsári. He had been on foot all
day in the sun, and all the afternoon his mouth had been hot and
bitter with curses. He had drunk nothing for many hours. As he
walked along, the craving for water grew stronger and stronger, till
he could bear it no longer. He realised vaguely the peril he ran in
accepting anything from the hand of a pisási, nevertheless he
stopped and looked about, in the hope of finding something to drink.
Near at hand was a small shop presided over by a hideous old she-
pisási. Undeterred by the horrible aspect of the red-eyed, wrinkled,
old hag, the púsári approached her with the intention of asking for a
drink of water. As he did so, he felt conscious that all the pisásis had
suddenly stood still and were watching him. The she-pisási’s shop
contained some strange things. On one side lay a huge rock python
cut into lengths, each of which was wriggling about as if full of life.
On the other side lay a young crocodile apparently dead; but as the
púsári approached, it turned its head and looked slily at him with its
cold yellow eye. Over the old hag’s head hung a crate full of live
snakes, that writhed about and thrust their heads through the withes.
Strings of dead bats, and baskets full of loathsome reptiles and
creeping creatures, filled the shop. In front of her stood a hollow
gourd full of water.
‘Mother! I am thirsty,’ said the púsári as he pointed to the water. But
though he said the words, he did not hear his own voice. The old hag
looked fixedly at him for a moment, and then raising the gourd, gave
it to him. He raised it to his lips, and drank long and eagerly. As he
put the empty vessel down, he felt everything reel and swim about
him. Gazing wildly round, he grasped at the air two or three times for
some support, and then fell to the ground motionless and senseless.
AN EVERY-DAY OCCURRENCE.
There are in all our lives episodes which we should be glad to
forget; of which we are so much ashamed, that we scarcely dare to
think of them, and when we do, find ourselves hurriedly muttering the
words we imagine we ought to have said, or making audible
apologies for our conduct to the air; and yet these are not always
episodes which necessarily involve a tangible sense of wrong done
either to ourselves or to others. Some such episode in a
commonplace life, such as must have fallen to the lot of many men,
we would here reveal.
Once upon a time—to commence in an orthodox fashion—a man
and a maid lived and loved. On the woman’s part the affection was
as pure and generous as ever filled the breast of a maiden; on the
man’s, as warm as his nature permitted. His love did not absorb his
whole soul, it rather permeated his mind and coloured his being. Like
most men of his not uncommon stamp, his affection once given, was
given for ever. His was not a jubilant nature, nor did his feelings lie
near the surface, and his manner was undemonstrative. The girl was
clear-sighted enough to see that what love there was, was pure and
true, and she made up for its scarcity with the overflowings of her
sympathetic nature. She idealised rather than condoned. She gave
in such measure that she could not perceive how little she was
receiving in return; or if she noticed it, her consciousness of its worth
seemed to her a full equivalent. He was an artist; and circumstances
forced the lovers to wait, and at the same time kept them apart. A
couple of days once a month, and a week now and again, was the
limit of the time they could spend together. This, of course,
prevented them getting that intimate knowledge of each other’s
personality which both recognised as an essential adjunct to the
happiness of married life, though they did their best to obviate it by
long letters, giving full details of daily events and of the society in
which they moved. The remedy was an imperfect one. Strive as they
might, the sketches were crude, and the letters had a tendency to
become stereotyped. We only mention these details to show that
they tried to be perfectly honest with each other.
While the girl’s life, in her quiet country home, was one that held little
variety in it, it was a part of the man’s stock-in-trade to mix with
society and to observe closely. Whether he liked it or not, he was
compelled to make friends to such an extent as to afford him an
opportunity of gauging character. Unfortunately for the purposes of
my study, he had no sympathy with pessimism or pessimists. He
loved the good and the beautiful for their own sakes, and in his art
loved to dwell on the bright side of human nature, a side which the
writer has found so much easier to meet with than the more sombre
colouring we are constantly told is the predominating one in life. Like
most artists, he was somewhat susceptible, but his susceptibility was
on the surface; the inward depths of his soul had never been stirred
save by the gentle girl who held his heart, and she was such as to
inspire a constant and growing affection rather than a demonstrative
passion.
At one of the many houses at which he was a welcome guest, the
lover found a young girl bright, sensuous, beautiful. Unwittingly, he
compared her with the one whose heart he held, and the comparison
was unsatisfactory to him; do what he would, the honesty of his
nature compelled him to allow that this beautiful girl was the superior
in a number of ways to her to whom he had pledged his life. He was
caught in the Circe’s chains of golden hair, and fancied—almost
hoped—yet feared lest, like bonds of cobwebs in the fairy tale, the
toils were too strong for him to break. He could see, too, that the girl
regarded him with a feeling so warm, that a chance spark would
rouse it into a flame of love; and this gave her an interest as
dangerous as it was fascinating. His fancy swerved. Day after day he
strove with himself, and by efforts, too violent to be wise, he kept
away from the siren till his inflamed fancy forced him back to her
side.
To the maiden in the country he was partially honest. In his letters he
faithfully told her of his visits, and as far as he could, recorded his
opinions of the girl who had captivated his fancy. Too keen an artist
to be blind to her faults, he dwelt on them in his frequent letters at
unnecessary length. When the lovers met, the girl questioned him
closely about her rival, but only from the interest she felt in all his
friends known and unknown, for her love for him was too pure and
strong to admit of jealousy, and he, with what honesty he could,
answered her questions unreservedly.
Little by little he began to examine himself. Which girl did he really
love? Should he not be doing a wrong to both by not deciding? The
examination was dangerous, because it was not thorough. The
premises were true, but incomplete. Yet we should wrong him if we
implied that he for a moment thought seriously about breaking off his
engagement. Even had he wished, his almost mistaken feelings of
honour would have forbidden it. This constant surface introspection
—a kind of examination which, had not the subject been himself, he
would have despised and avoided—could have but one result—an
obliquity of mental vision. He had a horror of being untrue—untrue to
himself as untrue to his lass, and yet he dreaded causing pain to a
bosom so tender and innocent. When he sat down to write the
periodical letters to the girl to whom he was engaged, he found his
phrases becoming more and more general and guarded. He took
pains not to let her know what he felt must wound her, and the letters
grew as unnatural as they had been the reverse; they were
descriptive of the man rather than the reflex of his personality.
The country girl was quick of perception. The letters were more full
of endearing terms than ever; they were longer and told more of his
life; yet between the lines she could see that they were by one
whose heart was not at rest, and that a sense of duty and not of
pleasure prompted the ample details. Their very regularity was
painful: it seemed as if the writer was anxious to act up to the letter
of his understanding. She knew that the letters were often written
when he was tired out. Why did he not put off writing, and taking
advantage of her love, let her exercise her trust in him? Eagerly she
scanned the pages to find the name of her rival, and having found it,
would thoughtfully weigh every word of description, of blame or
praise.
When the lovers met, she questioned him more closely than she had
ever done before. He was seemingly as fond as ever; no endearing
name, no accustomed caress, was forgotten. He spoke of himself
and his friends as freely as usual, and all her questions were
answered without a shadow of reserve. Yet the answers were slower,
and his manner absent and thoughtful. For a time she put it down to
the absorbing nature of his pursuits; but little by little, a belief that
she was no longer dearest crept into her heart, and would not be
dislodged, try as she might. She thought she was jealous, and
struggled night and day against a fault she dreaded above all others;
then, in a paroxysm of despair, she allowed herself to be convinced
of what she feared, and, loving him deeply, prepared to make the
greatest sacrifice an unselfish woman can offer. He no longer loved
her; it was best he should be free.
When he had been with her last, he had told her that his ensuing
absence must perforce be longer than usual, and this she thought
would be the best time for her purpose.
‘Dear Frank,’ she wrote at the end of a pitiful little letter, ‘I am going
to ask you not to come here next week. This will surprise you, for in
all my other letters I have told you that what I most look forward to in
life is your visits. But I have been thinking, dear, that it will be best for
us to part for ever. I often ask myself if we love one another as much
as we did, and I am afraid we do not. A loveless married life would
be too dreadful to live through, and I dare not risk it. It is better that
the parting should come through me. Do not fancy that I am
reproaching you; I cannot, for to me you are above reproach, above
blame. All I feel is that our affection is colder, so we had better part.
God bless you, Frank; I can never tell you how deeply I have loved
you.—Elsie.’
Frank was almost stunned by the receipt of this letter. He read it and
re-read it till every word seemed burnt into his brain. That the girl’s
love for him was less, he did not believe; he could read undiminished
affection in the vague phraseology, in the studied carefulness to take
equal blame on herself. That she should be jealous, was out of the
question; long years of experience had taught him that this was
totally foreign to her trustful nature. There was but one conclusion to
come to. She had given him up because she thought his happiness
involved. Yet she wished him to be free; might it not be ungracious to
refuse to accept her gift?
Free! There was a terrible fascination in the sound. Be the bondage
ever so pleasant, be it even preferable to liberty itself, the idea of
freedom is irresistibly alluring. If the same bondage will be chosen
again, there is a delight in the consciousness that it will be your own
untrammelled choice. Frank was aware of a wild exultation when he
realised the fact that he was once more a free agent. In the first flush
of liberty, poor Elsie’s image faded out of sight, and that of the siren
took its place. Now, without wrong, he might follow his inclinations.
He determined to write to Elsie, but knew not what to say, and put it
off till the morrow.
There could be no harm in going to the house of his fascinator; it
was pleasant to think that he might now speak, think, look, without
any mental reservations; there would be no longer any need to
watch his actions, or to force back the words which would tell her
that she exercised a deadly power over him. The girl received him
with a winning smile, yet, when he touched her hand, he did not feel
his brain throb or his blood rush madly through his veins as he had
expected. He bore his part through the evening quietly, and owned
that it was a pleasant one; still, the flavour was not what he had
expected. He called to mind that when he was abroad for the first
time, he had been served with a peculiar dish, which he
remembered, and often longed for when unattainable. After several
years, he had visited the same café and ordered the same dish. The
same cook prepared it, and the same waiter served it, but the taste
was not the same; expectation had heightened the flavour, and the
real was inferior to the ideal.
So it was with Frank. Before, when the siren had seemed
unattainable, he had luxuriated in her beauty, admired her grace and
genius, and revelled in her wit; now, when he felt he might call these
his own, his eye began to detect deficiencies. The girl noted his
critical attitude, and chafed at the calmness of his keen, watchful
glance. Where was the open admiration she used to read in his
eyes? Piqued at his indifference, she grew silent and irritable; and
when he bade her farewell, both were conscious that an ideal had
been shattered.
He buttoned his overcoat, and prepared for a long walk to the lonely
chambers where he lived the usual careless, comfortless life of a
bachelor whose purse is limited. All the way home he submitted
himself to a deep and critical examination. He felt as if he was sitting
by the ashes of a failing fire which he had no means of replenishing;
the night was coming, and he must sit in the cold. If passion died out,
where was he to look for the sympathy, the respect, the true
friendliness which alone can supply its place in married life? Then he
thought of Elsie. He had made a mistake, but a very common
mistake. He had thought that the excitement of his interest, the
enchaining of his fancy, and the enthralment of his senses, was love,
and lo! it was only passion. He analysed his feelings more deeply
yet, and getting below the surface-currents which are stirred by the
winds, saw that the quiet waters beneath had kept unswervingly on
their course.
When he reached his chambers, he sat down by his table and drew
paper and ink towards him. ‘I shall not accept your dismissal, Elsie,’
he wrote hurriedly in answer to her piteous letter: ‘I should be very
shallow if I could not read the motive which prompted your letter. I
shall come down as usual, and we will talk over it till we understand
each other fully. Till then, you must believe me when I tell you that I
love you all the more for your act of sacrifice, and that I love you
more now than I have ever done before.’
Frank and Elsie have been long married, and are content. There is
no fear of his swerving again; but the event described left its mark on
Frank. He knows now that he was on the verge of committing a
grievous mistake, and one which might have darkened all his future
life. For it is not great events, involving tragedies and tears, that
impress themselves most deeply upon the body of our habits and
thoughts; but the tendency of our life, as in the case before us, is
often most deeply affected by what is no more than ‘an every-day
occurrence.’
A NIGHT IN A WELL.
The station of Rawal Pindi, in which the following incident took place,
is a large military cantonment in the Punjab, about a hundred miles
from the Indus at Attock, where the magnificent bridge across the
rapid river now completes the connection by rail between the
presidency towns of Calcutta, Madras, and Bombay with Peshawur
our frontier outpost, which, like a watchful sentinel, stands looking
straight into the gloomy portal of the far-famed Khyber Pass. It was
at Rawal Pindi that the meeting took place between the Viceroy of
India, Lord Dufferin, and the present Ameer of Afghanistan, before
whom were then paraded not only the garrison of Rawal Pindi, or, as
it is more generally known in those parts, by the familiar abbreviation
of Pindi—a Punjabi word signifying a village—but a goodly array of
the three arms, artillery, cavalry, and infantry, drawn from the
garrisons of the Punjab and North-west Provinces of India. In
ordinary times, the troops in garrison at Pindi consist of four or five
batteries of royal artillery, both horse and field; a regiment of British,
and one of Indian cavalry; and one regiment of British, and two of
Bengal infantry, with a company of sappers and miners. The
barracks—or, as they are called in India, the lines—occupied by
these troops extend across the Grand Trunk Road leading to
Peshawur, those of the royal artillery being almost, if not quite on the
extreme right, and it is here that the occurrence which gives the
heading to this article took place.
In front of the lines of each regiment is the quarter-guard belonging
to it, at a distance of two or three hundred yards from the centre
barrack. The men of this guard are turned out and inspected once by
day and once by night by the officer on duty, technically known as
the orderly officer. In rear of the quarter-guard, as has been already
said, are the men’s barracks; and in rear of them the cook-houses
and horse-lines, amongst and behind which are large wells—‘pucka
wells,’ as they are called, from being lined for a long way down and
about the surface with brick-work and cement, in distinction from the
ordinary ‘cutcha wells,’ which are merely circular holes dug until
water is reached.
The pucka wells in the Pindi cantonments are from twelve to
fourteen feet in diameter, and from thirty to forty feet from the surface
to the water. They are surrounded by low parapets; and from each
well extend long troughs of brick and cement, into which the water
drawn from the well is conducted by channels, for the use of the
horses and other cattle belonging to the artillery or cavalry. The low
parapets round the wells are sufficient protection, at all events in the
daytime; though instances are not unfrequent when accidents have
occurred on a dark night to goats, sheep, and even bullocks straying
from their tethers, especially when a dust-storm has been adding by
its turmoil to the bewilderment of all so unfortunate as to be caught
abroad in it, as the writer has on more than one occasion, when
compelled to stand or sit for hours behind some protecting wall or
tree; the darkness in noonday has been so great that his hand,
though held close to his eyes, was with difficulty discernible. When to
such a state of things are added the roar of the wind and the beating
of broken branches of trees, wisps of straw, and other articles caught
up and hurtled along, it may be easily imagined how dazed and
perplexed is the condition of every creature so exposed. A dust-
storm, however, had nothing to say to the accident with which we
have to do.
In rear of the cook-houses, wells, &c., come the mess-house and the
bungalows in which the officers reside, each in its own compound or
inclosure, about eighty or a hundred yards square, and about a
quarter of a mile from the men’s lines.
One night in the cold season of 1866-67, as well as I can remember,
the subaltern on duty at Pindi was Lieutenant Black—as we will call
him—of the Royal Horse Artillery. He was well known in the arm of
the service to which he belonged as a bold and fearless horseman,
who had distinguished himself on many occasions as a race-rider
both at home and abroad. On the evening in question he remained
playing billiards in the mess-house until it was time to visit the
quarter-guard in front of the lines. A little before midnight he mounted
his horse at the door of the mess, and started. It was very dark; but
he knew the road well, and had perfect faith in his horse, a favourite
charger; so, immediately on passing the gate of the mess
compound, he set off, as was his custom, at a smart canter along the
straight road leading to the barracks. He passed through these, and
soon reached the guard, which he turned out, and finding all present
and correct, proceeded to return to his own bungalow, having
completed his duty for the day. He rode through the lines by the way
he had come; but then, being in a hurry to get to bed, he left the
main road and took a short-cut across an open space.
Notwithstanding the darkness, the horse was cantering freely on, no
doubt as anxious as his master to reach his comfortable stall, when
all at once Black felt him jump over some obstacle, which he cleared,
and the next moment horse and rider were falling through the air;
and a great splash and crash were the last things of which Black had
any consciousness. After an interval—how long he couldn’t tell—
sensation slowly returned, and he became aware that he was still
sitting in his saddle, but bestriding a dead horse. His legs were in
water; and the hollow reverberation of his voice when he shouted for
help, as he did until he could do so no longer, informed him that he
had fallen into one of the huge wells somewhere in the lines. It was
intensely dark; but he soon became aware that there were other
living creatures in the well, for from its sides came occasional weird
rustlings and hissings, which added considerably to the horror of his
situation, by creating a vague feeling of dread of some unknown
danger close at hand.
Slowly the long night passed, and he could plainly hear the gongs of
the different regiments as the hours were struck on them, and the
sentries, as if in mockery, crying the usual ‘All’s well.’ Gradually day
began to dawn, and light to show up above at the mouth of the well.
By degrees, his prison became less dim, and he could see his
surroundings. He was bestriding his dead charger, which lay
crumpled up with a broken neck at the bottom of the well, in which
was not more than three feet of water. Black himself, except for the
shock, was uninjured. His legs were pretty well numbed, from being
so long in the water, but there were no bones broken; and barring
the terrible jar to his system, he was sound in every respect. As the
sun arose, he began to peer about, and again tried to make himself
heard above ground. This caused a renewal of the peculiar rustlings
and hissings we have referred to; and he was now enabled to verify
what he had dreaded and suspected when he first heard them in the
dark. All round the sides of the well were holes, tenanted by snakes,
most of them of the deadly cobra tribe, and many, seemingly, of an
extraordinary size. Presently, like muffled thunder, the morning gun
roused the sleepers in the various barracks, and the loud reveille
quickly following it, brought hope of speedy release to the worn-out
watcher.
The bheesties coming to draw water were the first to discover him,
and their loud cries soon surrounded the mouth of the well with
stalwart artillerymen. Drag-ropes were brought from the nearest
battery; and Black, barely able to attach them to his body, was at
length drawn, to all appearance more dead than alive, to upper air,
unable to reply to the eager questionings of those by whom he was
surrounded. He was placed on a hospital litter, and hurried off to his
own bungalow. Under careful treatment, and thanks to a splendid
constitution, he was in a short time again fit for duty.
When recounting the events of the night, Black didn’t forget to
mention his sensations at hearing the hissings all round him, and
which the darkness at first made him think to be closer even than
they were. This at once caused a proposal to be made for a raid
upon the inhabitants of the holes; but he begged that they should not
be disturbed, saying that they could do no harm where they were,
and that he couldn’t but feel deeply grateful for their forbearance in
confining themselves to hissing his first and, he sincerely hoped, his
last appearance in a well.
PERSEPHONÉ.
A LAY OF SPRING.[1]
Through the dusky halls of Hadës
Thrills the echo of a voice,
Full of love, and full of longing:
‘Come, and bid my heart rejoice!
Daughter, all the world is barren,
While I mourn thy long delay!’
It is fond Demeter calling
On her lost Persephoné.
Sad she leans, the queen of Hadës,

On the gloomy monarch’s breast,
When upon her fettered senses
Falls that wail of Earth distrest;
And it woos her latent fancy
With a dream of days gone by—
And her heart responds in rapture
To that eager parent-cry!
Gently from the shadowy circle

Of his arms she lifts her head,
And its youthful beauty lightens
Even the Kingdom of the Dead.
Half a-dreaming, yet resistless
To the voice that bids her come,
Soft she murmurs: ‘Mother calls me;
Hermes waits to lead me home.’
‘Wilt thou leave me? I have loved thee,

Held thee dear as queenly wife;
It was Zeus who gave thee to me—
Life to Death, and Death to Life!’
Still a-dreaming and bewildered,
‘Ah!’ she says, complaining low,
‘Hear ye not Demeter calling?
King and husband, let me go!’
Lingeringly he yields his darling,

But she leaves the Shadow-land
With his spell upon her spirit,
With his chain upon her hand.
‘She will come again,’ he whispers,
‘And our union earth must own;
Young Life drawn from Death’s embraces
Will return to share his throne!’
. . . . .
Pure and queenly, all immortal,

Stands she ’neath her native skies:
Cloud and sunbeam, dew and rainbow,
Mingle in her lucid eyes:
Fitful smiles and vivid blushes
Blend to banish every tear,
And, like lute, her tender accents
Fall upon Demeter’s ear:
‘Mother, from the heart of Hadës

I have come again to thee!’—
Desert wide and boundless welkin,
Grove and valley, hill and sea,
All the animate creation,
All the haunts of listening day,
Echo with Demeter’s answer:
‘Hail, my child Persephoné!’
Lo! the world awakes to rapture;

Love rejoices, gods are glad,
Flowers unfold around her footfalls,
Youth in virgin garb is clad;
All the Muses chant a welcome;
Nymph and Naïad swell the strain;
Dancing sunbeams, laughing waters,
Aid the triumph of her train.
Where she moves, a magic whisper

Stirs the world to wanton mirth;
Winter flies before her presence;
Forms of beauty find new birth;
Nature’s languid pulses flutter
With the fervid breath of Spring,
Zephyrs tell to opening blossoms:
‘Eros comes to reign as king!’
Ah! while life breaks forth in music,

Emerald hues, and heavenly light,
Warmth, and love, and fairest promise,
Still a vision of the night
Glides athwart the happy Present,
Vague as harvest hopes in May;
’Tis a dream of gloomy Hadës
Haunts the young Persephoné!
So, to Mother Earth she falters:

‘Though thy daughter, still his wife.
Zeus decrees in kingly fashion,
Death shall hold the hand of Life:
Zeus decrees, and in one circle
Life and Death doth still combine.
Though I crown thee with my beauty,
Though my soul is part of thine,
Yet the mighty Hadës holds me
By a power that is divine.
‘But, sweet mother, Life can only

Be withdrawn. It never dies.
From the heart of sombre Hadës,
At thy call I will arise.
Year by year thy eager summons
Shall have power to break the chain,
And in all her youthful glory,
Will thy daughter come again.
‘Yet, because his spell must ever

Lie upon my charmèd soul,
He, the gloomy Lord of Shadows,
Shall my wayward will control.
As I heard thee call, my mother,
So his call I must obey;
Even here shall come his mandate,
And I may not answer nay.
Ah! when harvest fruits are garnered,
Mourn thy child Persephoné.’
Jessie M. E. Saxby.
[1] Persephoné, according to the Greek mythology, was the

daughter of Zeus (the Heavens) and Demeter (the Earth). Various
legends are related of her, one of the later and most beautiful
being that, when young, she was carried off by Pluto (ruler of the
spirits of the dead), and by him made Queen of Hadës (the nether
world). Her mother, in agony at her loss, searched for her all over
the earth with torches, until at last she discovered her abode. The
gods, moved by the mother’s distress, sent a messenger to bring
Persephoné back, and Pluto consented to let her go on condition
that she returned and spent a portion of every year with him. From
this, Persephoné became among the ancients the symbol of
Spring, her disappearance to the lower world coinciding with
winter, and her reappearance in the upper world bringing back
vegetable life and beauty.
Printed and Published by W. & R. Chambers, 47 Paternoster Row,

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Multiple Choice Questions

4. A form of equity which receives no preferential treatment in either the payment of

6. The constant dividend growth model is:

7. The constant dividend growth model:

16. The value of common stock today depends on:

19. The discount rate in equity valuation is composed entirely of:

Chapter 09 How to Value Stocks Answer Key

Multiple Choice Questions

Difficulty level: Easy

Difficulty level: Easy

Difficulty level: Easy

4. A form of equity which receives no preferential treatment in either the payment of

Difficulty level: Easy

Difficulty level: Easy

6. The constant dividend growth model is:

Difficulty level: Medium

7. The constant dividend growth model:

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Medium

16. The value of common stock today depends on:

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Medium

19. The discount rate in equity valuation is composed entirely of:

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Easy

Difficulty level: Easy

Difficulty level: Easy

Difficulty level: Easy

Difficulty level: Easy

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Medium

Difficulty level: Medium

g = .1125 - .015 = .0975 = 9.75%

Difficulty level: Easy

Difficulty level: Medium

Difficulty level: Medium