The Wrench Company Is Expected to Pay a Dividend of $1.00

question 80

Multiple Choice

The Wrench Company is expected to pay a dividend of $1.00 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock of the Wrench Company has a beta of 1.2. What is the intrinsic value of The Wrench's stock?

• A) $14.29
• B) $14.60
• C) $12.33
• D) $11.63

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Definitions:

Negotiable Instrument

A written document that promises or orders the payment of a fixed amount of money, with the capability of being transferred to another party.

Presentment

The act of making a demand for the drawee to pay.

UCC

A standardized set of laws that facilitate the commercial exchange of goods, securities, and transactions across the U.S.

UCC

The Uniform Commercial Code, a set of laws that provide legal rules and regulations governing commercial or business dealings and transactions.