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.

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Definitions:

Color-Sensitive Cones

Photoreceptor cells in the retina of the eye that are responsible for color vision.

Retinal Cells

Specialized cells located in the retina of the eye that are responsible for converting light into neuronal signals.

Wavelength

The length between one wave crest and the following one, specifically referring to sound waves or electromagnetic waves.

Reddish

Having a color or tint that is somewhat red; appears slightly red.