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

question 18

Multiple Choice

If a stock's dividend is expected to grow at a constant rate of 6 percent in the future and it has just paid a dividend of $3.00 per share,and you have an alternative investment of equal risk that will earn a 9 percent rate of return,what would you be willing to pay per share for this stock?

• A)$9
• B)$20
• C)$45
• D)$106

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Definitions:

Minnesota Multiphasic Personality Inventory

A widely used psychological assessment tool that evaluates personality traits and psychopathology.

Rorschach Inkblot Test

A psychological test in which subjects' perceptions of inkblots are recorded and then analyzed using psychological interpretation, complex algorithms, or both.

Pleasure Principle

A psychoanalytic concept proposing that individuals seek immediate gratification to avoid discomfort, driving much of their behavior.

Reality Principle

A psychoanalytic concept describing the capacity to postpone gratification and operate according to the conditions of the external world.