ABC Common Stock Is Expected to Have Extraordinary Growth of 20

question 123

Multiple Choice

ABC common stock is expected to have extraordinary growth of 20% per year for two years, at which time the growth rate will settle into a constant 6%.If the discount rate is 15% and the most recent dividend was $2.50, what should be the current share price?

• A)$31.16
• B)$33.23
• C)$37.42
• D)$47.77 P_o =

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Definitions:

TSX

Toronto Stock Exchange, the primary stock exchange in Canada.

Stock Volatilities

The degree of variation of a trading price series over time, measured by the standard deviation of logarithmic returns.

Negative Correlation

A relationship between two variables in which one variable increases as the other decreases, and vice versa.

Systematic Correlation

The degree to which the returns of different investments move together due to changes in the overall market.