Two Corporations a and B Have Exactly the Same Risk,and

question 43

Multiple Choice

Two corporations A and B have exactly the same risk,and both have a current stock price of $100.Corporation A pays no dividend and will have a price of $120 one year from now.Corporation B pays dividends and will have a price of $113 one year from now after paying the dividend.The corporations pay no taxes and investors pay no taxes on capital gains,but pay a 30% income on dividends.What is the value of the dividend that investors expect corporation B to pay one year from today?

• A)$7
• B)$13
• C)$10
• D)$20

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Definitions:

Punitive Damages

Monetary compensation awarded to a plaintiff, over and above actual damages, intended to punish the defendant and deter future similar acts.

Breaching Party

The individual or entity that violates the terms of a contract or legal agreement.

Contract Law

The body of law that governs the making, validity, enforcement, and termination of contracts between parties.

Economic Growth

An increase in the production of goods and services in an economy over a period of time, typically measured by the gross domestic product (GDP).