You Forecast a Constant Dividend Growth Rate of 8% and D0

question 61

Multiple Choice

You forecast a constant dividend growth rate of 8% and D0 = $4. You require a rate of return of 12% and the current market price is $120.

• A) The NPV of the stock is -$12.
• B) K* is greater than K.
• C) The model assumes you will sell the stock within 3 years.
• D) The stock is undervalued.

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Definitions:

Stolen Bearer Instrument

A negotiable financial instrument that was unlawfully taken from its rightful owner and is payable to whoever holds the document.

Innocent

The state of being not guilty of a crime or other wrong act.

Negotiation

The process by which two or more parties engage in discussions to reach a mutually agreed-upon outcome.

Indorsee

A person to whom a negotiable instrument is transferred by indorsement.