Sam Is Evaluating a Stock That Is Expected to Pay

question 53

Multiple Choice

Sam is evaluating a stock that is expected to pay a $1.25 per share dividend at the beginning of next year. He expects the dividend to grow by 10% per year and has determined that 12% is an appropriate required return for the stock. What is the highest amount he should pay for the stock?

• A) $1.25
• B) $12.50
• C) $15.00
• D) $62.50

---

Definitions:

Empirical Economics

The branch of economics that analyzes data to understand and explain economic phenomena.

Economic Theories

Systematic frameworks for analyzing economic phenomena, developed to explain and predict economic patterns and behaviors.

Normative Statement

An assertion that expresses a value judgment or opinion about what ought to be, rather than what is empirically verifiable.

Post Hoc

A logical fallacy that assumes a cause-and-effect relationship simply because one event follows another in time.