A Firm Expects to Pay Dividends at the End of Each

question 6

Multiple Choice

A firm expects to pay dividends at the end of each of the next four years of $2.00, $1.50, $2.50, and $3.50. If growth is then expected to level off at 8 percent, and if you require a 14 percent rate of return, how much should you be willing to pay for this stock? (Round intermediate calculations to two decimal places.)

• A)$39.38
• B)$22.49
• C)$58.15
• D)$63.00
• E)$43.96

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Definitions:

Insurance Company's Agent

An insurance company's agent is an individual authorized to sell and manage insurance policies on behalf of an insurance company.

Coinsurance Clause

A provision in insurance policies requiring the policyholder to bear a portion of the costs of a claim, encouraging insured parties to avoid excessive claims.

Replacement Value

The cost to replace an asset or property at its current value, without deduction for depreciation, at the time of loss.

Indemnity

A legal principle involving security or protection against financial liability or loss.