You Wish to Earn a Return of 13% on Each

question 37

Multiple Choice

You wish to earn a return of 13% on each of two stocks,X and Y.Stock X is expected to pay a dividend of $3 in the upcoming year while Stock Y is expected to pay a dividend of $4 in the upcoming year.The expected growth rate of dividends for both stocks is 7%.The intrinsic value of stock X ______.

• A)will be greater than the intrinsic value of stock Y
• B)will be the same as the intrinsic value of stock Y
• C)will be less than the intrinsic value of stock Y
• D)A or B
• E)none of the above is a correct answer.

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Definitions:

Cash Account

An account that shows the amount of cash a company has on hand or in the bank.

Cash Dividends

Profit distributions paid out by a corporation to its shareholders.

Net Income

The company's overall earnings following the subtraction of all costs, taxes, and expenses from the total income.

Investing Activities

Transactions related to the acquisition or disposal of long-term assets and investments, usually reflected in the investing section of the cash flow statement.