IBM's Stock Price Is $22, It Is Expected to Pay

question 39

Multiple Choice

IBM's stock price is $22, it is expected to pay a $2 dividend, and analysts expect the firm to grow at 10 percent per year for the next five years. TDI's stock price is $10, it is expected to pay a $1 dividend, and analysts expect the firm to grow at 12 percent per year for the next five years. What is the difference in the two firms' required rate of returns?

• A)2.91 percent
• B)1.82 percent
• C)2.03 percent
• D)3.23 percent

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Definitions:

Forecasting Model

A mathematical or statistical model used to predict future events or trends based on historical data.

Seasonal Indices

Factors used in time series analysis to adjust predictions for seasonal effects, allowing for more accurate forecasting.

Quarterly Demand

Refers to the amount of goods or services demanded by consumers over a three-month period.