An Issue of Common Stock Currently Sells for $50

question 47

Multiple Choice

An issue of common stock currently sells for $50.00 per share,has an expected dividend to be paid at the end of the year of $2.50 per share,and has an expected growth rate to infinity of 5% per year.If investors' required rate of return for this particular security is 12% per year,then this security is

• A)overvalued and offering an expected return higher than the required return.
• B)undervalued and offering an expected return higher than the required return.
• C)overvalued and offering an expected return lower than the required return.
• D)undervalued and offering an expected return lower than the required return.

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Definitions:

Uncertainty Avoidance

A cultural dimension that describes the degree to which people in a society are comfortable with uncertainty and ambiguity.

Job Mobility

The ability of workers to change jobs, often relating to career advancement opportunities.

Uncertainty Avoidance

A cultural dimension that describes the extent to which people in a society are uncomfortable with ambiguity and uncertainty.

Ambiguity

The quality of being open to more than one interpretation; lack of definiteness or certainty.