A Stock Is Expected to Pay $0

question 7

Multiple Choice

A stock is expected to pay $0.70 per share every year indefinitely. If the current price of the stock is $18.90, and the equity cost of capital for the company that released the shares is 7.9%, what price would an investor be expected to pay per share five years into the future?

• A) $8.86
• B) $14.18
• C) $14.62
• D) $15.06

Understand the factors that influence the value and acceptance of fiat money.

Explain how money facilitates commitments for future payments.

Understand the relationship between money supply, inflation, and the purchasing power of money.

Recognize the role of commercial banks in the economy, including lending and profit generation.

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Definitions:

MC

Marginal Cost, the cost of producing one additional unit of a good.

ATC

Average Total Cost, which is the total cost of production divided by the quantity of output produced.

AVC

Average Variable Cost; the per unit variable cost associated with producing a good or service.

AFC

Average Fixed Cost; the total fixed costs of production divided by the quantity of output produced, illustrating how fixed costs spread out over produced units.