Torque Corporation Is Expected to Pay a Dividend of $1

question 80

Multiple Choice

Torque Corporation is expected to pay a dividend of $1.00 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 5% and the expected return on the market portfolio is 13%. The stock of Torque Corporation has a beta of 1.2.
-What is the return you should require on Torque's stock?

• A)12.0%
• B)14.6%
• C)15.6%
• D)20%
• E)none of the above

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Definitions:

Present Values

The today's worth of a future cash amount or cash flow series, determined by a given rate of return.

Discounting

The process of determining the present value of future cash flows by applying a discount rate, reflecting the time value of money.

Compounding

The process in which the value of an investment increases because the earnings on an investment, both capital gains and interest, earn interest as time passes.

Effective Annual Rates

The interest rate on a loan or financial product restated from the nominal rate as an annual rate that accounts for compounding over a given period.