You Are Considering the Purchase of a Certain Stock

question 15

Multiple Choice

You are considering the purchase of a certain stock. You expect to own the stock for the next four years. The current market price of the stock is $24.50 and you expect to sell it for $55 in four years. You also expect the stock to pay an annual dividend of $1.25 at the end of year 1,$1.35 at the end of year 2,$1.45 at the end of year 3 and $1.55 at the end of year 4. What is your expected return from this investment?

• A)21.78 percent
• B)18.36 percent
• C)26.68 percent
• D)32.85 percent
• E)None of these choices are correct.

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Definitions:

Absorption Costing

A costing approach in which all manufacturing costs are charged to the product.

Variable

An element, feature, or factor that is subject to change, often used in financial analysis, statistics, and scientific research.

Absorption

In accounting, it refers to the process of incorporating all costs of production into the value of a product, including both direct and indirect expenses.

Margin Of Safety Ratio

A financial metric that measures the difference between actual or projected sales and the break-even point.