A Stock Which Is Expected to Pay a $4 Dividend

question 42

True/False

A stock which is expected to pay a $4 dividend next year, growing constantly at 6%, and is priced to yield a required return of 18% must be selling for $33.33.

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Definitions:

Regression Coefficient

A quantitative measure in statistics that represents the strength and direction of the relationship between a dependent variable and an independent variable in a regression analysis.

Single Factor Model

A model that explains the returns of an asset or portfolio using a single risk factor.

SMB Beta

A measure used in finance to assess the sensitivity of a stock's return relative to the size factor in an asset pricing model.

Factor Portfolio

A portfolio that is constructed to have a high sensitivity to certain economic or financial factors, aiming to capture specific risk premiums.