Exhibit 11.5 Use the Information Below for the Following Problem(S)

question 78

Multiple Choice

Exhibit 11.5
Use the Information Below for the Following Problem(S)
The National Motor Company's last dividend was $1.25 and the directors expect to maintain the historic 4 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 7 percent for the next three years and the stock will then reach $25.00 per share.
-Refer to Exhibit 11.5.How much should you be willing to pay for the stock if you require a 16 percent return?

• A) $17.34
• B) $18.90
• C) $19.09
• D) $19.21
• E) None of the above

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Definitions:

Believable

Capable of being accepted as true or realistic; convincing or credible.

Hindsight Bias

The inclination to see events that have already occurred as being more predictable than they were before they took place.

Critical Thinking

Dedicated to an in-depth inspection and critique of a problem with the intent of deriving a verdict.

Overconfidence

Overconfidence is a cognitive bias in which a person's subjective confidence in their abilities or outcomes exceeds the objective accuracy of those assessments.