If the Present Value Equation Used to Calculate the Price

question 211

Multiple Choice

If the present value equation used to calculate the price of a stock you are considering buying is "[$12 / (0.05 - 0.02) ]," which of the following is correct,assuming that dividends will grow at a constant rate?

• A)The stock price is $12,the dividend growth rate is 2 percent,and the interest rate is 5 percent.
• B)The dividend is $12 per share,the dividend growth rate is 2 percent,and the interest rate is 5 percent.
• C)The stock price is $12,the dividend growth rate is 5 percent,and the interest rate is 3 percent.
• D)The dividend is $12 per share,the dividend growth rate is 5 percent,and the interest rate is 2 percent.

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Definitions:

Retinal Disparity

The slight difference in the visual images that reach each eye, leading to perception of depth.

Stereoscopic Vision

The ability to perceive depth and three-dimensional structure from visual information derived from two slightly different perspectives provided by the two eyes.

Binocular Inversion

A visual phenomenon where the vision is flipped upside down due to the use of devices that invert the light paths reaching the eyes.

Binocular

Pertaining to or involving both eyes, especially in providing stereoscopic vision or depth perception.