You Are Considering the Purchase of a Common Stock That

question 81

Multiple Choice

You are considering the purchase of a common stock that paid a dividend of $2.00 yesterday.You expect this stock to have a growth rate of 15 percent for the next 3 years,resulting in dividends of D₁=$2.30,D₂=$2.645,and D₃=$3.04.The long-run normal growth rate after year 3 is expected to be 10 percent (that is,a constant growth rate after year 3 of 10% per year forever) .If you require a 14 percent rate of return,how much should you be willing to pay for this stock?

• A)$89.75
• B)$83.65
• C)$56.46
• D)$62.57

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Definitions:

Renal Problem

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