If a Stock's Dividend Is Expected to Grow at a Constant

question 186

Multiple Choice

If a stock's dividend is expected to grow at a constant rate of eight percent in the future and it has just paid a dividend of $1.25 a share, and you have an alternative investment of equal risk that will earn a 12 percent rate of return, what would you be willing to pay per share for this stock today?

• A)$31.25
• B)$1.40
• C)$1.25
• D)$1.12

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Definitions:

Angular Blocks

Fragments of rock with sharp edges that have been broken off a larger mass by processes such as faulting or erosion.

Rock Powder

Finely ground rock that can be used as a soil amendment to provide minerals and nutrients for plant growth.

Sand

A grain or rock fragment smaller than 2 mm and larger than 1/16 mm.

Rounded Stones

Stones with smooth edges and surfaces typically resulting from extended water or wind erosion and abrasion.