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

question 170

Multiple Choice

If a stock's dividend is expected to grow at a constant rate of eight percent 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 percent 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:

Olfactory System

The sensory system responsible for smell, starting from the nasal cavity to the olfactory cortex in the brain.

Limbic System

An intricate network of nerves and pathways in the brain that regulates instinct and emotional state, governing fundamental emotions like fear, pleasure, and anger as well as primal impulses such as the need for food, sexual activity, domination, and nurturing offspring.

Forebrain

The anterior part of the brain, including the cerebral hemispheres, the thalamus, and the hypothalamus, responsible for a variety of functions including cognition, sensory processing, and motor responses.

Neocortex

The most evolved part of the cerebral cortex that involves higher functions such as sensory perception, generation of motor commands, spatial reasoning, conscious thought, and in humans, language.