You Wish to Earn a Return of 11% on Each

question 112

Multiple Choice

You wish to earn a return of 11% on each of two stocks, C and D. Stock C is expected to pay a dividend of $3 in the upcoming year while stock D 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 C

• A) will be greater than the intrinsic value of stock D.
• B) will be the same as the intrinsic value of stock D.
• C) will be less than the intrinsic value of stock D.
• D) will be the same or greater than the intrinsic value of stock D.
• E) None of the options.

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Definitions:

Competitive Market

A market structure characterized by a large number of buyers and sellers where no single participant can significantly influence the price of goods or services.

Demand Curve

A graph showing the relationship between the price of a good and the amount of the good that consumers are willing to purchase at that price.

Deadweight Loss

The reduction in economic efficiency that happens when equilibrium is not reached or is unattainable for a specific good or service.

Import Tariff

A tax imposed by a government on goods and services imported into its country to protect domestic industries from foreign competition.