USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 17

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Davenport Corporation's last dividend was $2.70, and the directors expect to maintain the historic 3 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 5 percent for the next three years and the stock will then reach $25 per share.
-Refer to Exhibit 8.1. How much should you be willing to pay for the stock if you require a 17 percent return?

• A) $16.97
• B) $22.16
• C) $21.32
• D) $32.63
• E) $23.63

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Definitions:

100-Percent-Reserve Banking

A banking system where banks are required to keep the full amount of each depositor's funds in reserve, meaning they cannot lend out any of the money deposited.

Fractional Reserve Economy

An economic system where banks hold a portion of customers' deposits in reserve and lend out the remainder, thus creating money.

Required Reserve Ratio

The minimum fraction of deposits banks are required by law to keep as reserves, either in their vaults or on deposit at a central bank.

Term Auction Facility

A monetary policy tool used by the Federal Reserve to provide short-term loans to banks, aiming to improve liquidity and stability in financial markets.