TLS Expects to Pay a Dividend of $3 Next Year

question 9

Multiple Choice

TLS expects to pay a dividend of $3 next year and expects these dividends to grow at 8% a year. The price of TLS is $95 per share. What is TLS' cost of equity capital?

• A) 3.16%
• B) 8%
• C) 4.84%
• D) 11.16%

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Definitions:

CPI

A measurement known as the Consumer Price Index tracks the change in average costs for a variety of consumer goods and services, including but not limited to transportation, medical care, and food, through a weighted average formula.

Basket of Goods

A selected set of products and services used to measure changes in prices and inflation over time.

Deflation

A decrease in the general price level of goods and services, often indicative of a reduction in the supply of money or credit in the economy.

Real Interest Rate

The interest rate recalibrated to factor in inflation, showcasing the real expense of borrowing or the legitimate profit from saving.