A Stock Recently Paid a Dividend of $3 Per Share

question 113

Multiple Choice

A stock recently paid a dividend of $3 per share. Its growth rate is expected to be 8 percent. Investors require a 10 percent return. The stock is selling in the market for $140. What is this stock worth and is the stock undervalued or overvalued?

• A) $162; undervalued
• B) $162; overvalued
• C) $150; undervalued
• D) $150; overvalued

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Definitions:

Mediocre

An attribute describing something of only average or moderate quality; not very good.

Systematic Mistakes

Errors that consistently occur due to inherent flaws in logic, procedure, or bias.

Paycheck

A paper document or electronic transfer issued by an employer to pay an employee for services rendered.

Inertia

A tendency to do nothing or to remain unchanged, often used metaphorically to describe economic or financial systems' resistance to change.