A Stock Currently Does Not Pay an Annual Dividend

question 104

Multiple Choice

A stock currently does not pay an annual dividend.An investor expects this policy to remain in force.She believes, however, the stock of this company will sell for $110.00 per share four years from now.If she has an interest (discount) rate of 7% (0.07) , the dividend discount model predicts the current price of this stock should be:

• A)You cannot apply the model to this example since it requires a dividend be offered
• B)$82.00
• C)$83.92
• D)$86.35

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Definitions:

Inner-City Youth

Refers to young people living in the densely populated, central areas of large cities, often highlighting demographic, economic, or social distinctions.

Fallacy of Composition

The incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or the whole.

Association

A group of individuals organized for a common purpose, having a formal structure and usually having voluntary membership.

Causation

The act or process whereby one event, process, or state (a cause) leads to the production of another event, process, or state (an effect).