Each of Two Stocks, C and D, Are Expected to Pay

question 124

Multiple Choice

Each of two stocks, C and D, are expected to pay a dividend of $3 in the upcoming year. The expected growth rate of dividends is 9% for both stocks. You require a rate of return of 10% on stock C and a return of 13% on stock D. 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) cannot be calculated without knowing the market rate of return.

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Definitions:

FUTA

The Federal Unemployment Tax Act, a United States federal law that imposes a payroll tax on businesses to fund state workforce agencies.

SUTA

SUTA, or State Unemployment Tax Act, is a taxation mechanism in the United States that mandates employers to pay a tax to fund unemployment benefits for workers who lose their jobs.

FICA-Social Security

The portion of the Federal Insurance Contributions Act tax that funds the Social Security program, providing benefits for retirees and disabled individuals.

FICA-Medicare

A federal tax in the United States deducted from employees' paychecks to fund the Medicare program, which provides health coverage to eligible elderly and disabled individuals.