Assume That the Discount Factor of a Stock Is 12

question 81

Multiple Choice

Assume that the discount factor of a stock is 12 percent and that cash flows are expected to grow 2 percent. What is the price of the stock if the original cash flow is $100?

• A)$1,400
• B)$1,200
• C)$800
• D)$1,000

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Definitions:

Consumer Price Index

is a measure that examines the weighted average of prices of a basket of consumer goods and services, often used to assess inflation.

Annual Rate

Refers to the yearly interest rate or growth rate applied to investments, loans, or any financial product that calculates earnings or payments over a year.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, used to estimate cost of living changes.