Which One of the Following Statements Is Correct Related to the Dividend

question 85

Multiple Choice

Which one of the following statements is correct related to the dividend growth model approach to computing the cost of equity?

• A)The rate of growth must exceed the required rate of return.
• B)The rate of return must be adjusted for taxes.
• C)The annual dividend used in the computation must be for Year 1 if you are Time 0's stock price to compute the return.
• D)The cost of equity is equal to the return on the stock plus the risk-free rate.
• E)The cost of equity is equal to the return on the stock multiplied by the stock's beta.

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Definitions:

Availability Bias

A cognitive bias that causes people to overestimate the likelihood of events based on their availability in memory, often leading to skewed decision-making.

Belief Perseverance

The tendency to cling to one's initial belief even after receiving new information that contradicts or disconfirms the basis of that belief.

Confirmation Bias

A predisposition to identify, comprehend, prioritize, and recollect facts in ways that corroborate one’s existing beliefs or suppositions.

Overconfidence Bias

The tendency for an individual to overestimate their abilities, knowledge, or performance capabilities.