Suppose That a Firm Always Announces a Yearly Dividend at the End

question 53

Multiple Choice

Suppose that a firm always announces a yearly dividend at the end of the first quarter of the year, but then pays the dividend out as four equal quarterly payments. If the next such "annual" dividend has been announced as $5, it is exactly one quarter until the first quarterly dividend from that $5, the effective annual required rate of return on the company's stock is 14 percent, and all future "annual" dividends are expected to grow at 4 percent per year indefinitely, how much will this stock be worth?

• A) $17.10
• B) $50.00
• C) $52.55
• D) $57.00

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Definitions:

Z-scores

An analytical metric indicating the proximity of a particular value to the average value in a dataset, quantified by the number of standard deviations separating it from the mean.

Standard Normal Distribution

A standard normal distribution characterized by a mean equal to zero and a standard deviation equal to one.

Greater Than

A mathematical symbol (>) indicating that one value is larger or more than another value.

Z-scores

Standard scores that indicate how many standard deviations an element is from the mean.