Assume That Bolton Company Will Pay a $2

question 108

Multiple Choice

Assume that Bolton Company will pay a $2.00 dividend per share next year, an increase from the current dividend of $1.50 per share that was just paid. After that, the dividend is expected to increase at a constant rate of 5%. If you require a 12% return on the stock, the value of the stock is

• A) $28.57.
• B) $28.79.
• C) $30.00.
• D) $31.78.
• E) None of the options are correct.

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Definitions:

Portfolio

A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including closed-end funds and exchange traded funds (ETFs).

Minimum Variance Portfolio

The minimum variance portfolio represents an investment portfolio constructed to achieve the lowest possible volatility or risk for its expected return, based on the correlation between assets.

Efficient

The ability to achieve a desired result without wasted energy or effort.

Optimal Portfolio

Optimal Portfolio is an investment portfolio that offers the highest expected return for a specific level of risk or the lowest risk for a given level of expected return.