The Next Questions Refer to the Following

question 4

Multiple Choice

The next questions refer to the following.
Suppose a stock exhibits no dividend growth; the current dividend is $21, and the required rate of return is 7%. The share price is currently $360.
-To maintain a 7% expected rate of return with a $21 annual dividend,the expected stock price next year must be

• A) $364.21
• B) $379.63
• C) $381.00
• D) $385.20
• E) $406.20

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Definitions:

Strike Price

The set price at which the holder of an option can buy (for a call option) or sell (for a put option) the underlying asset.

Risk-Free Rate

A risk-free investment's projected yield, often shown through the returns on government debt.

Call Option

This is a deal in financial settings enabling the purchaser the freedom, but not the requirement, to buy various assets such as stocks, bonds, or commodities at an established price before the conclusion of a certain timeframe.

Put Option

A financial contract allowing the holder to sell an asset at a predetermined price within a specific timeframe.