Todd Mountain Development Corporation Is Expected to Pay a Dividend

question 4

Multiple Choice

Todd Mountain development Corporation is expected to pay a dividend of $2.50 in the upcoming year. Dividends are expected to grow at the rate of 8% per year. The risk-free rate of return is 5% and the expected return on the market portfolio is 12%. The shares of Todd Mountain Development Corporation have a beta of 0.75. Using the CAPM, the return you should require on the shares is ________.

• A)7.25%
• B)10.25%
• C)14.75%
• D)21.00%

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Definitions:

Mills

In the context of property tax, a mill represents one-tenth of one cent. This unit of currency is often used in tax assessments and signifies the amount of tax payable per dollar of the assessed value of a property.

Gross Income

The total income earned by an individual or a business before any deductions or taxes are taken.

Royalties

A payment made to a patent owner, author, or composer for each sale or use of their work.

Tax Proration

The division of property taxes, insurance premiums, or other charges in proportion to time or use.