Question

1. All else the same, a higher plow back ratio means a(n) _________P/E ratio

(a) higher

(b) lower

(c) unchanged

(d) unable to determine

2. You wish to earn a return of 10% on each of two stocks,A and B.Each of the stocks is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends is 6% for stock A and 5% for stock B. Using the constant growth DDM, the intrinsic value of stock A is

(a) will be higher than the intrinsic value of stock B

(b) will be the same as the intrinsic value of stock B

(c) will be less than the intrinsic value of stock B

(d) more information is necessary to answer this question