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:

Unobtrusive Measures

Research methods that do not require direct interaction with participants, minimizing the potential for the researcher's presence to influence the results.

Demand Characteristics

Cues in an experiment that suggest to participants what the experimenter expects to find or how participants are expected to behave.

Demand Characteristic

Features of an experimental setting that cause participants to guess the purpose of the study and change their behavior.

Experimenter Expectancy

The phenomenon where the biases and expectations of the experimenter unconsciously influence the participants of an experiment.