You Want to Earn a Return of 11% on Each

question 13

Multiple Choice

You want to earn a return of 11% on each of two stocks, A and B. Stock A is expected to pay a dividend of $3 in the upcoming year, while stock B is expected to pay a dividend of $2 in the upcoming year. The expected growth rate of dividends for both stocks is 4%. 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:

Van Purchase

Refers to the acquisition of a van, categorized as a fixed asset, involving cash or credit transaction.

Financial Statements

Official documentation of a company, individual, or entity's financial transactions and status, usually comprising the income statement, balance sheet, and statement of cash flows.

Internal Accounting Staff

Employees within an organization responsible for overseeing and managing financial records and transactions.

Chief Executive Officer

The highest-ranking executive in a company, responsible for making major corporate decisions, overseeing the overall operations, and acting as the main point of communication between the board of directors and corporate operations.