Assume IBM Just Paid a Dividend of $4

question 38

Multiple Choice

Assume IBM just paid a dividend of $4.50 and expects these dividends to grow at 8% a year. The price of IBM is $100 per share. What is IBM's cost of equity capital?

• A) 3.86%
• B) 8%
• C) 12.22%
• D) 12.86%

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Definitions:

Effective Rate

The actual interest rate on an investment or loan, considering the compounding of interest at specific intervals within a given time period.

Interest Rate

The proportion of a loan charged as interest to the borrower, typically expressed as an annual percentage.

Effective Yield

The total yield on an investment after considering the effects of compounding interest or dividends over a specific period.

Simple Annualized

A calculation estimating yearly returns by extrapolating non-annual data without accounting for compounding effects.