In the Generalized Dividend Model,a Future Sales Price Far in the Future

question 18

Multiple Choice

In the generalized dividend model,a future sales price far in the future does not affect the current stock price because

• A)the present value cannot be computed.
• B)the present value is almost zero.
• C)the sales price does not affect the current price.
• D)the stock may never be sold.

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Definitions:

Two-Factor Economy

An economic model that considers two distinct factors or variables influencing outcomes, often used in finance to analyze returns or risks.

Expected Return

The average return an investor anticipates receiving on an investment if it is held for a specific period of time.

Risk Premium

The excess return that an investment is expected to generate above the risk-free rate, compensating investors for taking on a higher level of risk.

Arbitrage

The practice of buying an asset in one market and simultaneously selling it in another market at a higher price, thereby profiting from the temporary difference in prices.