You Consider Buying a Share of Stock at a Price

question 4

Multiple Choice

You consider buying a share of stock at a price of $25.The stock is expected to pay a dividend of $1.50 next year and your advisory service tells you that you can expect to sell the stock in one year for $28.The stock's beta is 1.1,rf is 6% and E[rm] = 16%.What is the stock's abnormal return?

• A) 1%
• B) 2%
• C) -1%
• D) -2%

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Definitions:

Obsolete

Referring to a product, service, or technology that has become out of date or no longer in use.

Free Cash Flow

The amount of cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Operating Activities

The day-to-day actions that are involved in running a business and generating revenue, including production, sales, and service delivery.

Existing Capacity

The current maximum output or production level that a facility or factory can achieve using its available resources.