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

question 192

Multiple Choice

If a stock's dividend is expected to grow at a constant rate of 8 per cent 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 per cent 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:

Endoscopic Retrograde Cholangiopancreatography

A medical procedure that combines the use of endoscopy and fluoroscopy to diagnose and treat conditions related to the bile ducts, pancreatic duct, and gallbladder.

Lower Esophageal Sphincter

A muscular ring at the lower end of the esophagus that controls the flow of food from the esophagus into the stomach.

Alimentary Canal

The digestive tube extending from the mouth to the anus, through which food is ingested, digested, absorbed, and waste material expelled.

Amylase

An enzyme that catalyzes the hydrolysis of starch into sugars, found in the saliva and pancreatic fluid of humans.