The Expected Rate of Return on a Share of Common

question 49

Multiple Choice

The expected rate of return on a share of common stock whose dividends are growing at a constant rate (g) is which of the following,where D1 is the next dividend and Vc is the current value of the stock?

• A) (D1 + g)/Vc
• B) D1/Vc + g
• C) D1/g
• D) D1/g + Vc

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Definitions:

Liability Accounts

Accounts on a balance sheet that represent obligations or debts of a company that are expected to be paid in the future.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset since it was put into use, reflecting its decline in value over time.

Permanent Account

Financial accounts that are not closed at the end of an accounting period and whose balances are carried forward to the next period.

Post-closing Trial Balance

A financial statement prepared after closing entries are made, listing all the account balances to check the equality of debits and credits.