The Expected Return on a Common Stock Is Equal To

question 68

Multiple Choice

The expected return on a common stock is equal to:

• A) [(1 + dividend yield) × (1 + capital appreciation rate)] − 1.
• B) the capital appreciation rate + dividend yield.
• C) (1 + capital appreciation rate)/(1 + dividend yield).
• D) the capital appreciation rate − dividend yield.

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Definitions:

Savings Rate

The proportion of disposable income that is saved rather than spent on consumption, typically expressed as a percentage.

Credit Cards

Financial instruments issued by banks or financial institutions that allow cardholders to borrow funds with which to pay for goods and services with the obligation to pay back the borrowed money, plus any applicable interest.

Permanent Income Hypothesis

A theory suggesting that people's consumption choices are based on their long-term income expectations rather than their current income.

Induced Consumption

Consumer spending that increases as disposable income rises, and decreases as disposable income falls, unrelated to the level of interest rates.