The Current Dividend Yield, Which Is the Recent Dividend Divided

question 55

Multiple Choice

The current dividend yield, which is the recent dividend divided by the current stock price, on common stock of Formosan Freedom Co. is 4.8 %. The company just paid a $2.10 dividend. The dividend will be $2.205 in next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on stock of Formosan Freedom Co.?

• A) 10.04 percent
• B) 16.07 percent
• C) 21.88 percent
• D) 43.75 percent

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Definitions:

Revolving Credit Agreement

A credit arrangement that allows a company or individual to borrow, repay, and borrow again up to a certain credit limit.

Commitment Fee

A fee charged by a bank for guaranteeing to have loanable funds available. The fee is charged on un borrowed amounts up to the maximum of the guarantee. See Revolving credit agreement.

Line of Credit

An arrangement between a financial institution and a customer that establishes a maximum loan balance the borrower can access.

Clean-Up Requirement

A term often used in banking, referring to a requirement that a borrower must pay down a line of credit to zero or to a specific level at least once within a certain period.