You Are Trying to Determine the Appropriate Price to Pay

question 69

Multiple Choice

You are trying to determine the appropriate price to pay for a share of common stock. If you purchase this stock, you plan to hold it for 1 year. At the end of the year you expect to receive a dividend of $5.50 and to sell the stock for $154. The appropriate rate of return for this stock is 16 percent. What should the current price of this stock be?

• A)$150.22
• B)$162.18
• C)$137.50
• D)$98.25
• E)$175.83

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Definitions:

Inflation Rate

The percentage increase in the price level of goods and services in an economy over a period of time, usually measured on a yearly basis.

Eisenhower Administration

The presidency of Dwight D. Eisenhower, the 34th president of the United States, from 1953 to 1961, known for its moderate political stance during the Cold War era.

Federal Government

The national government of a federation, which has specific powers accorded to it by a constitution, distinct from regional governments.

World War II Veterans

Individuals who served in the military during World War II, contributing significantly to the Allied victory.