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  Equity valuation models based on dividends, cash flows, and earnings have been the topic of many theoretical and empirical research studies in recent years

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1. Equity valuation models based on dividends, cash flows, and earnings have been the topic of many theoretical and empirical research studies in recent years. All of the following are true regarding evidence from these studies except
   a. unexpected changes in earnings do not correlate with changes in stock prices.
   b. share prices in the capital markets generally correlate closely with share value.
   c. temporary deviations of price from value occur.
   d. share prices do not always equal share values.
2. The theory supporting dividends-based valuation is
   
   a. dividends are value-relevant to common equity shareholders because the dividends are cash flows directly to the equity shareholders.
   b. dividends are established by the policies of the managers and the board of directors of the firm.
   c. dividends represent the free cash flows into the firm.
   d. dividends are equivalent to the difference between the comprehensive income and the required income ("normal earnings") of the firm.
3. Under the CAPM, the expected rate of return is based on the following component(s):
   a. the risk-free rate of return.
   b. the firm's systematic risk, estimated with the firm's market beta.
   c. the market risk premium.
   d. all of these responses are correct.
4. Under the CAPM, the expected rate of return compensates investors for
   
   a. unsystematic risk.
   b. systematic risk.
   c. the time value of money.
   d. both systematic risk and the time value of money.
5. The dividends-based valuation approach cannot be used for firms that do not pay dividends.
   a. True
   b. False
6. Examples of types of risks that are nondiversifiable within the market-wide portfolio of stocks might include:
   a. economy-wide inflation.
   b. recessionary economic conditions.
   c. technological discoveries in an industry.
   d. both economy-wide inflation and recessionary economic conditions.
7. Examples of types of risks that are diversifiable within the market-wide portfolio of stocks might include:
   a. the effects of competition on the demand for a firm's products.
   b. changes in economy-wide prices for specific inputs, like coffee.
   c. labor strikes.
   d. all of these answer choices are correct.
8. Suppose a firm has a beta of 1.25, the risk-free yield on long-term government securities is 4.0%, and the market-risk premium is 6.0%. The expected return under the CAPM is
   a. 11.5%.
   b. 4.0%.
   c. 7.5%.
   d. 6.0%
9. Suppose for a particular year a firm had comprehensive income of $9,000, a beginning book value of equity of $76,000, and an ending book value of equity of $77,000. Using the clean surplus accounting relation, how much were the firm's dividends that year?
   a. $9,000
   b. $8,000
   c. $85,000
   d. $0
10. Dividends are value-relevant and we can value firms using the present value of expected future dividends. However, a firm's dividend policy (whether and when it pays dividends) can be irrelevant for valuation under a strong assumption. What is that strong assumption?
    
    a. The assumption of continuing growth after the forecast horizon
    b. The assumption that the firm will be liquidated at some time in the future
    c. The assumption that the firm always issues and repurchases shares for fair value.
    d. The assumption that the firm will be able to reinvest capital that is not paid out in dividends, and earn a rate of return equal to the investors' expected rate of return