A Stock You Are Interested in Paid a Dividend of $1

question 54

Multiple Choice

A stock you are interested in paid a dividend of $1 last month. The anticipated growth rate in dividends and earnings is 25% for the next 2 years before settling down to a constant 5% growth rate. The discount rate is 12%. Calculate the expected price of the stock.

• A) $15.38
• B) $20.50
• C) $21.05
• D) $22.27
• E) $26.14

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Definitions:

Embezzlement

The act of dishonestly withholding assets for the purpose of conversion of such assets, by one or more individuals to whom the assets were entrusted.

Perceptually Exaggerating

The cognitive bias or tendency to overestimate the significance or size of an object, event, or outcome.

Newly Obtained Information

Information that has recently been acquired, offering up-to-date insights or knowledge that was not previously known.

Old Friend

A person with whom one has had a friendship for a long period of time, often sharing numerous memories and experiences.