A Firm Has a P/E Ratio of 20 and an Eternal

question 36

Multiple Choice

A firm has a P/E ratio of 20 and an eternal earnings growth rate of 4%. What does this imply that investors are expecting as a rate of return on the stock?

• A)5%
• B)1%
• C)24%
• D)9%

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Definitions:

Tenancy In Common

A form of real estate ownership where two or more individuals possess property simultaneously, with each holding an undivided interest in the property.

Joint Tenancy

A legal arrangement where two or more individuals hold property jointly, with equal rights and privileges.

Tenancy By The Entirety

A form of joint property ownership available only to married couples, where each owns the entire property, and upon one's death, the survivor automatically owns the property outright.

Life Tenant

A person who has the right to use and benefit from property during their lifetime but cannot bequeath it, as the property reverts to another on their death.