If a Stock's Dividend Is Expected to Grow at a Constant

question 107

Multiple Choice

If a stock's dividend is expected to grow at a constant rate of 6 percent in the future and it has just paid a dividend of $3.00 per share, and you have an alternative investment of equal risk that will earn a 9 percent rate of return, what would you be willing to pay per share for this stock?

• A)$9
• B)$20
• C)$45
• D)$100

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Definitions:

Act of God

An unforeseen and unpreventable event caused by natural forces, which exonerates parties from contract obligations.

Contributory Negligence

A legal principle that reduces the amount of damages a plaintiff can receive based on the degree to which the plaintiff's own negligence contributed to the harm.

Electrical Storm

A storm characterized by lightning and thunder, typically with heavy rain or hail.

Icy Sidewalk

A sidewalk covered in ice, creating a potential hazard for pedestrians.