What Should Be the Current Price of a Stock If

question 74

Multiple Choice

What should be the current price of a stock if the expected dividend is $5, the stock has a required return of 20 percent, and a constant dividend growth rate of 6 percent?

• A)$19.23
• B)$25.00
• C)$35.71
• D)$37.86

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Definitions:

Working Backward

A problem-solving strategy that involves starting from the desired solution or goal and working in reverse to determine the steps needed to reach that goal.

Well-Specified Goal

A clear and detailed objective that is explicitly defined, making it understandable and achievable.

Many Options

The state of having numerous choices available in a given situation, allowing for flexibility in decision-making.

Heuristics

Mental shortcuts or rules of thumb that simplify decision making or problem solving, often leading to quick but not always accurate judgments.