The Lighthouse Co

question 242

Multiple Choice

The Lighthouse Co. is in a downsizing mode. The company paid a $2.50 annual dividend last year. The company has announced plans to lower the dividend by $.50 a year. Once the dividend amount becomes zero, the company will cease all dividends permanently. You place a required rate of return of 16% on this particular stock given the company's situation. What is one share of this stock worth to you today?

• A) $3.76
• B) $4.08
• C) $4.87
• D) $5.13
• E) $5.39

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Definitions:

Spot Exchange Rate

The current market price for immediate exchange of currencies.

British Securities

Financial instruments issued in the United Kingdom, including stocks, bonds, and other investment vehicles.

Total Return

The overall financial gain or loss on an investment, including both capital appreciation and income received.

Risk-Free Rate

The return on an investment with zero risk, typically represented by the yield on government bonds.