You Are Considering the Purchase of a Common Stock That

question 52

Multiple Choice

You are considering the purchase of a common stock that paid a dividend of $2.00 yesterday.You expect this stock to have a growth rate of 15 percent for the next 3 years,resulting in dividends of
D1 = $2.30,D2 = $2.645,and D3 = $3.04.The long-run normal growth rate after year 3 is expected to be
10 percent (that is,a constant growth rate after year 3 of 10% per year forever) .If you require a 14 percent rate of return,how much should you be willing to pay for this stock?

• A) $89.75
• B) $83.65
• C) $56.46
• D) $62.57

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Definitions:

Finite Population

A population set that contains a limited or countable number of elements or members.

Sample Size

Sample size refers to the number of individuals or observations included in a sample taken from a population for the purpose of statistical analysis.

Population Standard Deviation

The measure of variability that encompasses all the values in a given population.

Point Estimate

A single value (or point) that serves as the best guess or best estimate of a population parameter (like the mean or proportion).