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

question 26

Multiple Choice

Each of two shares, A and B, are expected to pay a dividend of $7 in the upcoming year. The expected growth rate of dividends is 6% for both shares. You require a return of 10% on Share A and a return of 12% on Share B. Using the constant growth DDM, the intrinsic value of Share A ________.

• A)will be higher than the intrinsic value of Share B
• B)will be the same as the intrinsic value of Share B
• C)will be less than the intrinsic value of Share B
• D)more information is necessary to answer this question

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Definitions:

NAV

Net Asset Value, the total value of a fund's assets minus its liabilities, often used to price each share of a mutual fund or ETF.

Capital Gain Distributions

Payments made to mutual fund shareholders from the fund's sale of securities that result in a capital gain.

Income Distributions

Income distributions refer to the payment of earnings, interests, dividends, or other income, from an investment or fund to its shareholders or investors.

Rate of Return

The positive or negative return on an investment over a given period, measured as a percentage of the investment's initial price.