If a Stock's Dividend Is Expected to Grow at a Constant

question 192

Multiple Choice

If a stock's dividend is expected to grow at a constant rate of 8 per cent in the future and it has just paid a dividend of $1.25 a share,and you have an alternative investment of equal risk that will earn a 12 per cent rate of return,what would you be willing to pay per share for this stock?

• A) $31.25
• B) $1.40
• C) $1.25
• D) $1.12

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Definitions:

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A personality trait characterized by rapid mood swings and difficulty in managing emotions or reactions to situations.

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The emotional, psychological, and social responses and adjustments individuals make in response to the loss of a loved one or the confrontation with their own mortality.

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