Prock Petroleum's Stock Has a Required Return of 13%, and the Stock

question 57

Multiple Choice

Prock Petroleum's stock has a required return of 13%, and the stock sells for $50 per share. The firm just paid a dividend of $1.00, and the dividend is expected to grow by 30% per year for the next 4 years, so D4 = $1.00(1.30) 4 = $2.8561. After t = 4, the dividend is expected to grow at a constant rate of X% per year forever. What is the stock's expected constant growth rate after t = 4, i.e., what is X?

• A) 7.46%
• B) 7.85%
• C) 8.26%
• D) 8.70%

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Definitions:

Fast-Food

Quick service restaurants serving food that is prepared and served rapidly.

Consumer Surplus

The benefit obtained by consumers because they are able to purchase a product for a price that is less than the highest price that they would be willing to pay.

Optimal Consumption

refers to the situation in which a consumer allocates their income in a way that maximizes their overall satisfaction or utility, given their preferences and the prices of goods and services.

Demand Schedule

A demand schedule is a table that shows the quantity of a good or service that consumers are willing and able to purchase at various prices.