A Stock Is Expected to Pay No Dividends for the First

question 65

Multiple Choice

A stock is expected to pay no dividends for the first three years, i.e., D1 = $0, D2 = $0, and D3 = $0. The dividend for Year 4 is expected to be $5.00 , and it is anticipated that the dividend will grow at a constant rate of 8 percent a year thereafter. The risk-free rate is 4 percent, the market risk premium is 6 percent, and the stock's beta is 1.5. Assuming the stock is fairly priced, what is the current price of the stock?

• A) $ 69.31
• B) $ 72.96
• C) $ 79.38
• D) $ 86.38
• E) $100.00

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Definitions:

Selective Serotonin Reuptake Inhibitors (SSRI)

A class of drugs used primarily in the treatment of depression and anxiety that works by increasing the levels of serotonin in the brain.

Electroconvulsive Therapy

A medical treatment most commonly used for severe major depression which involves brief electrical stimulation of the brain while the patient is under anesthesia.

Deep Brain Stimulation

A neurosurgical procedure that involves implanting electrodes within certain areas of the brain to regulate abnormal impulses in conditions like Parkinson's disease.