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:

Room

A designated space within a building, separated by walls, for a particular purpose or activity.

Human Capital

The skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.

Devil's Advocate

A position taken by someone to provoke debate or challenge the prevailing viewpoint for the sake of argument or analysis.

Critical

In context, refers to something of great importance or a situation/condition being especially significant or perilous.