IBM Expects to Pay a Dividend of $5 Next Year

question 73

Multiple Choice

IBM expects to pay a dividend of $5 next year and expects these dividends to grow at 7% a year. The price of IBM is $90 per share. What is IBM's cost of equity capital?

• A) 3.77%
• B) 5.02%
• C) 7%
• D) 12.56%

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Definitions:

Downward Slope

A graphical representation indicating a decrease or decline in value, often used in reference to graphs showing relationships such as demand curves.

Topographical Map

A type of map characterized by large-scale detail and quantitative representation of relief, usually using contour lines.

Indifference Map

A graphical representation showing different bundles of goods between which a consumer is indifferent.

Demand Curves

A graphical representation showing the relationship between the price of a good and the quantity of that good consumers are willing to buy.