Using the Gordon Growth Model,if D₁ Is

question 12

Multiple Choice

Using the Gordon growth model,if D₁ is $.50,kₑ is 7%,and g is 5%,then the present value of the stock is

• A)$2.50.
• B)$25.
• C)$50.
• D)$46.73.

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Definitions:

Call Contract

A financial contract that gives the holder the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period.

Option Contract

An agreement that gives the owner the right, but not the obligation, to buy or sell a specific asset at a specific price for a set period of time.

Put Options

Financial contracts giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a specified time frame.

Exercise Price

The price set for buying or selling an asset under the terms of an options contract.