A Stock Is Expected to Pay a $1

question 40

Multiple Choice

A stock is expected to pay a $1.00 dividend per share. The growth rate is expected to be 4 percent. If investors demand 10 percent on this stock, what is the expected price of the stock 10 years from now?

• A) $24.68
• B) $22.17
• C) $25.00
• D) $26.93

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Definitions:

Commercial Substance

A situation where the future cash flows of an asset or business operation are expected to change significantly as a result of a transaction.

Fair Value

An estimate of the market value of an asset or liability, based on current prices in an active market.

Book Value

The net value of a company's assets found on its balance sheet, which is calculated by subtracting liabilities from the total value of assets.

Commercial Substance

An economic concept indicating that a transaction significantly alters the cash flows or financial position of an entity.