IBM's Stock Price Is $22, It Is Expected to Pay

question 39

Multiple Choice

IBM's stock price is $22, it is expected to pay a $2 dividend, and analysts expect the firm to grow at 10 percent per year for the next five years. TDI's stock price is $10, it is expected to pay a $1 dividend, and analysts expect the firm to grow at 12 percent per year for the next five years. What is the difference in the two firms' required rate of returns?

• A)2.91 percent
• B)1.82 percent
• C)2.03 percent
• D)3.23 percent

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Definitions:

Income Ceiling

A maximum limit imposed on the amount of income that an individual or family can earn within a specified period, used in certain policies to determine eligibility for social benefits.

Urban Renewal

A series of policies supported by all levels of government that allowed local governments and housing authorities to demolish so-called blighted areas in urban centers to replace them with more valuable real estate usually reserved for white people.

Kitchen Debate

A series of impromptu exchanges between U.S. Vice President Richard Nixon and Soviet Premier Nikita Khrushchev in 1959, highlighting the contrasts between American and Soviet lifestyles and ideologies.

Nikita Khrushchev

A Soviet statesman who led the Soviet Union during part of the Cold War as the First Secretary of the Communist Party and as Premier.