A Company Currently Pays a Dividend of $4

question 118

Multiple Choice

A company currently pays a dividend of $4.00 per share.It expects the growth rate of the dividend to be 3% (0.03) annually.If the interest rate is 6% (0.06) what does the dividend-discount model predict the current price of the stock should be?

• A)$103.33
• B)It doesn't, you need an expected future selling price to use the model
• C)$137.33
• D)$66.67

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Definitions:

Aggregate Demand

The comprehensive requirement for goods and services across an economy at an established price point within a specific period.

Aggregate Demand Curve

A graph showing the relationship between the total quantity of goods and services demanded across all levels of prices in an economy.

Real Output

The quantity of goods and services produced in an economy adjusted for inflation, representing the actual productivity.

Price Level

A measure of the average prices of goods and services in an economy at a specific point in time.