What Would Be the Maximum an Investor Should Pay for the Common

question 42

Multiple Choice

What would be the maximum an investor should pay for the common stock of a firm that has no growth opportunities but pays a dividend of $1.36 per year? The next dividend will be paid in exactly 1 year. The required rate of return is 12.5%.

• A) $9.52
• B) $10.88
• C) $12.24
• D) $17.00
• E) None of these.

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Definitions:

Minimizing Law

The principle suggesting that organisms will adapt their behaviors in order to minimize negative consequences or punishments.

Contrast Law

A principle in psychology that states the perceived intensity of a stimulus can change relative to the intensity of a preceding or surrounding stimulus.

Mowrer's Two-Factor Theory

A theory proposing that avoidance learning involves both classical conditioning of fear and operant conditioning of the avoidance response.

Avoidance Conditioning

A learning process in operant conditioning wherein an individual learns a behavior to avoid an undesired stimulus or outcome.