Exhibit 11.7 Use the Information Below for the Following Problem(S)

question 20

Multiple Choice

Exhibit 11.7
Use the Information Below for the Following Problem(S)
Consider a firm that has just paid a dividend of $1.5. An analyst expects dividends to grow at a rate of 9% per year for the next three years. After that dividends are expected to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is 7%.
-Refer to Exhibit 11.7.The future price of the stock in year 3 is

• A) $81.75
• B) $84.81
• C) $92.56
• D) $101.85
• E) $111.16

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Definitions:

Framing Effect

A cognitive bias where people react differently to a particular choice or decision depending on how it is presented to them.

Overconfidence

The condition of being excessively confident or assured in one’s ability, correctness, or reliability, often without sufficient reason.

Framing Effect

A cognitive bias where people react differently to a choice depending on how it is presented, or "framed," especially as a loss or gain.

Belief Perseverance

The psychological phenomenon where individuals maintain their convictions even when confronted with contrary evidence, showcasing the difficulty of changing deeply held beliefs.