You Wish to Earn a Return of 10% on Each

question 123

Multiple Choice

You wish to earn a return of 10% on each of two stocks, C and D.Each of the stocks is expected to pay a dividend of $2 in the upcoming year.The expected growth rate of dividends is 9% for stock C and 10% for stock D.The intrinsic value of stock C

• A)will be greater than the intrinsic value of stock D.
• B)will be the same as the intrinsic value of stock D.
• C)will be less than the intrinsic value of stock D.
• D)will be the same or greater than the intrinsic value of stock D.
• E)None of the options

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Definitions:

Effective-interest Amortization

A method of amortizing the premium or discount on bonds payable that reflects interest expense on the outstanding balance of the bond over its life.

Issue Price

The price at which a company's shares or bonds are made available for sale when they are first issued to the public.

Book Value

The net value of a company's assets minus its liabilities, indicating the total value of the company’s equity as recorded in the financial statements.

Effective-interest Method

An accounting practice for amortizing the discount or premium on bonds or loans in a way that reflects a constant interest rate over the period.