Each of Two Stocks, a and B, Is Expected to Pay

question 59

Multiple Choice

Each of two stocks, A and B, is expected to pay a dividend of $7 in the upcoming year. The expected growth rate of dividends is 6% for both stocks. You require a return of 10% on stock A and a return of 12% on stock B. Using the constant-growth DDM, the intrinsic value of stock A ________.

• A) will be higher than the intrinsic value of stock B
• B) will be the same as the intrinsic value of stock B
• C) will be less than the intrinsic value of stock B
• D) The answer cannot be determined from the information given.

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Definitions:

Binge Episode

An event of excessive indulgence in an activity, especially eating or drinking, over a short period of time.

Proteins

Large, complex molecules essential for the structure, function, and regulation of the body's tissues and organs, made up of amino acids.

Self-Induced Vomiting

The act of deliberately vomiting, often used as an unhealthy method to control weight or relieve discomfort from overeating.

Bulimia Nervosa

An eating disorder characterized by episodes of binge eating followed by compensatory behaviors such as purging, fasting, or excessive exercise to prevent weight gain.