Each of Two Stocks, a and B, Are Expected to Pay

question 42

Multiple Choice

Each of two stocks, A and B, are expected to pay a dividend of $5 in the upcoming year. The expected growth rate of dividends is 10% for both stocks. You require a rate of return of 11% on stock A and a return of 20% on stock B. The intrinsic value of stock A

• A) will be greater than the intrinsic value of stock B.
• B) will be the same as the intrinsic value of stock B.
• C) will be less than the intrinsic value of stock B.
• D) cannot be calculated without knowing the market rate of return.