If the Required Rate of Return Is 10 Percent and the Stock

question 14

Multiple Choice

If the required rate of return is 10 percent and the stock pays a fixed $5 dividend, its value is

• A)$100
• B)$75
• C)$50
• D)$25

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Definitions:

Cumulative Preferred

A type of preferred stock where dividends accumulate if not paid in a given period and must be paid out before any dividends can be distributed to common stockholders.

Dividends in Arrears

Dividends owed on cumulative preferred stock that require payment prior to distributing any dividends to holders of common stock.

Par Value

The nominal or face value of a bond, or stock, as stated by the issuing company.

Treasury Stock

Shares that were issued and subsequently reacquired by the company. They are held in the company’s treasury and can be reissued or retired.