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:

Transcription

The process of copying a segment of DNA into RNA by the enzyme RNA polymerase.

Eukaryotes

Eukaryotes are organisms whose cells have a nucleus enclosed within a nuclear envelope, distinguishing them from prokaryotes.

Prokaryotes

Prokaryotes are unicellular organisms characterized by the absence of a nucleus or any other membrane-bound organelles, including bacteria and archaea.

Cytoplasm

The jelly-like substance within a cell enclosed by the cell membrane, containing all organelles and cell parts.