Pete and Repete Both Require a 15% Rate of Return

question 94

Multiple Choice

Pete and Repete both require a 15% rate of return on Buckeye stock that is currently selling for $20 per share. Both feel that it is appropriate to use the constant growth model to value the stock. They agree that the dividend next year will be $2.00 and will grow at 5% a year for the foreseeable future. Pete plans to buy the stock and hold it for 4 years while Repete plans to buy the stock and hold it for 8 years. Which of the following statements is true?

• A) Pete should be willing to pay more for the stock than Repete.
• B) Repete should be willing to pay more for the stock than Pete.
• C) Neither will be willing to buy the stock.
• D) Both should be willing to buy the stock.
• E) Insufficient information.

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Definitions:

Cognitive Deficits

Impairments in processing information, including memory, problem-solving, and attention.

Diagnostic and Statistical Manual (DSM-IV)

A manual published by the American Psychiatric Association that outlines the standard criteria for the classification and diagnosis of mental disorders.

Psychological Disorders

Mental disorders characterized by patterns of thought, emotion, or behavior that are significantly distressing or impairing in social, work, or other important activities.

Antisocial Personality Disorder

A mental health disorder characterized by a long-term pattern of manipulating, exploiting, or violating the rights of others without any remorse.