Each of Two Stocks,A and B,are Expected to Pay a Dividend

question 35

Multiple Choice

Each of two stocks,A and B,are expected to pay a dividend of $7 in the upcoming year.The expected growth rate of dividends is 6% for both stocks.You require a return of 10% on stock A and a return of 12% on stock B. Using the constant growth DDM, the intrinsic value of stock A _________.

• A) will be higher than the intrinsic value of stock B
• B) will be the same as the intrinsic value of stock B
• C) will be less than the intrinsic value of stock B
• D) more information is necessary to answer this question

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Definitions:

Density

The mass per unit volume of a substance, often measured in grams per cubic centimeter (g/cm³).

Mass

An estimation of the quantity of matter present in an object, commonly measured in grams or kilograms.

Significant Figures

Significant figures are the digits in a number that carry meaningful contributions to its measurement accuracy, including all the non-zero digits, zeroes between significant digits, and trailing zeros in a decimal.

Mass

A property of a physical body, indicating the amount of matter it contains and a measure of its resistance to acceleration when a force is applied.