If the Present Value Equation Used to Calculate the Price

question 36

Multiple Choice

If the present value equation used to calculate the price of a stock you are considering buying is "[$7 / (0.04 - 0.03) ]," which of the following is correct,assuming that dividends will grow at a constant rate?

• A)The stock price is $7,the dividend growth rate is 3 percent,and the interest rate is 1 percent.
• B)The dividend is $7 per share,the dividend growth rate is 1 percent,and the interest rate is 4 percent.
• C)The stock price is $700,the dividend growth rate is 3 percent,and the interest rate is 4 percent.
• D)The dividend is $7 per share,the dividend growth rate is 4 percent,and the interest rate is 3 percent.

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Definitions:

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