If Expected Dividends Grow at 7% and the Appropriate Discount

question 62

Multiple Choice

If expected dividends grow at 7% and the appropriate discount rate is 9%, what is the value of a stock with an expected dividend one year from now of $1.00?

• A) $62.88
• B) $19.41
• C) $29.12
• D) $50.00

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Definitions:

Securities

Securities that signify either an equity stake in a corporation that is publicly traded, a debt interest in a company or government entity, or ownership rights as delineated by an option.

HML Beta

A measure used in finance to assess the sensitivity of an asset or portfolio to a value factor, defined as high minus low book-to-market stocks.

SMB Beta

Stands for Small Minus Big Beta, a metric used in finance to measure a stock's sensitivity to the SMB factor, which represents the excess return of small-cap stocks over large-cap stocks.

Market Beta

A measure of a stock's volatility in relation to the overall market; indicates the stock's sensitivity to market movements.