When the Stock Price Is 20 and the Present Value

question 12

Multiple Choice

When the stock price is 20 and the present value of dividends is 2,which of the following is the recommended way of constructing a tree?

• A) Draw a tree for an initial stock price of 20 and subtract the present value of future dividends at each node
• B) Draw a tree for an initial stock price of 22 and subtract the present value of future dividends at each node
• C) Draw a tree with an initial stock price of 18 and add the present value of future dividends at each node
• D) Draw a tree with an initial stock price of 18 and add 2 at each node

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Definitions:

Equity Investments

Financial assets in companies or properties, representing ownership interest and the potential for dividends or capital gains.

Mutual Fund

An investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, and other assets.

Diverse Corporations

Companies that are varied in terms of their industry sectors, sizes, and cultural inclusivity within the workforce.

Lengthy Period

A significantly long duration of time.