Exercise Bicycle Company Is Expected to Pay a Dividend in Year

question 40

Multiple Choice

Exercise Bicycle Company is expected to pay a dividend in year 1 of $1.20, a dividend in year 2 of $1.50, and a dividend in year 3 of $2.00. After year 3, dividends are expected to grow at the rate of 10% per year. An appropriate required return for the stock is 14%. The stock should be worth _______ today.

• A) $33.00
• B) $39.86
• C) $55.00
• D) $66.00
• E) $40.68

---

Definitions:

Insurance Contract

A legally binding agreement between an insurer and the insured, where the insurer agrees to compensate the insured for specific losses in exchange for a premium.

Leases

Legal agreements granting use or occupation of property during a specified period in exchange for a specified rent or terms.

Duration

The duration or period that something exists or persists.

Property Owner

An individual or entity that holds legal title and ownership rights over a piece of property.