You Wish to Earn a Return of 13% on Each

question 41

Multiple Choice

You wish to earn a return of 13% on each of two stocks, X and Y.Stock X is expected to pay a dividend of $3 in the upcoming year while stock Y is expected to pay a dividend of $4 in the upcoming year.The expected growth rate of dividends for both stocks is 7%.The intrinsic value of stock X

• A)will be greater than the intrinsic value of stock Y.
• B)will be the same as the intrinsic value of stock Y.
• C)will be less than the intrinsic value of stock Y.
• D)will be the same or greater than the intrinsic value of stock Y.

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Definitions:

At-risk Amount

The maximum amount of money an individual could lose in an investment, which has implications for tax deductions on certain types of losses.

At-risk Amount

The amount of money an investor could lose in an investment, emphasizing the capital actually at risk.

Passive Loss Rules

U.S. tax regulations that restrict the amount of losses investors can claim from passive activities to the amount of income generated by those activities.

Gain(Loss)

The profit or shortfall realized from an investment when comparing the sale price to the original purchase price.