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:

Prepaid Insurance

Payments made for insurance services before the coverage period, recorded as an asset initially and expensed over time.

Accrued Revenues

Revenues that have been earned through goods or services delivered, though payment has not yet been received.

Unearned Revenues

Money received by an individual or company for a service or product that has yet to be provided or delivered.

Accounting Period

A specific duration of time for which financial activities are reported and analyzed, usually a year or a quarter.