A Stock Is Expected to Pay $1

question 37

Multiple Choice

A stock is expected to pay $1.25 per share every year indefinitely and the equity cost of capital for the company is 7.5%.What price would an investor be expected to pay per share ten years in the future?

• A)$16.67
• B)$25.01
• C)$33.34
• D)$41.68

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Definitions:

Command Economies

Economic systems where the government or central authority makes all decisions regarding the production and distribution of goods and services.

Corporation

A legal entity that is separate and distinct from its owners, which can own assets, incur liabilities, and sell securities, among other activities.

Independent Legal Entity

An organization that has legal rights and obligations independent of its members, such as the ability to enter contracts, sue, and be sued.

Government Bailouts

Financial support provided by a government to a failing business or sector to prevent its collapse and mitigate broader economic fallout.