Two Corporations a and B Have Exactly the Same Risk

question 40

Multiple Choice

Two corporations A and B have exactly the same risk, and both have a current stock price of $100. Corporation A pays no dividend and will have a price of $120 one year from now. Corporation B pays dividends and will have a price of $113 one year from now after paying the dividend. The corporations pay no taxes and investors pay no taxes on capital gains, but pay a 30 percent income tax on dividends. What is the value of the dividend that investors expect corporation B to pay one year from today?

• A)$7
• B)$13
• C)$10
• D)$20

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Definitions:

Middle Term

In syllogistic logic, the term that appears in both premises but not in the conclusion, serving as a link between the major and minor terms.

Major Premise

The first statement in a syllogism, providing a general statement or condition for the argument.

Minor Premise

The second proposition in a syllogism, offering a specific instance of the generalization stated in the major premise.

Mood

The emotional state or atmosphere that a speaker implies through their choice of words and sentences in language.