A Share of Stock Has a Dividend of D0 =

question 89

Multiple Choice

A share of stock has a dividend of D0 = $5. The dividend is expected to grow at a 20 percent annual rate for the next 10 years, then at a 15 percent rate for 10 more years, and then at a long-run normal growth rate of 10 percent forever. If investors require a 10 percent return on this stock, what is its current price?

• A) $100.00
• B) $ 82.35
• C) $195.50
• D) $212.62
• E) The data given in the problem are internally inconsistent, i.e., the situation described is impossible in that no equilibrium price can be produced.

---

Definitions:

Steroid Hormones

Lipid-soluble molecules derived from cholesterol that act as chemical messengers in the body, influencing growth, metabolism, and other functions.

Autocrine Signaling

A form of cell signaling in which a cell produces and secretes a molecule that binds to receptors on the same cell, leading to a response.

Classical Endocrine Signaling

A method of cellular signaling wherein hormones are released by glands into the bloodstream and transported to target organs or tissues to elicit specific physiological responses.

Insulin-like Growth Factor

A protein with high similarity to insulin; it plays an important role in childhood growth and continues to have anabolic effects in adults.