You Are Considering the Purchase of Ordinary Shares That Just

question 86

Multiple Choice

You are considering the purchase of ordinary shares that just paid a dividend of $6.50 per share.Security analysts agree with top management in projecting steady growth of 12% in dividends and earnings over the foreseeable future.Your required rate of return for shares of this type is 18%.How much should you expect to pay for this share?

• A)$86
• B)$94
• C)$108
• D)$121
• E)$242

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Definitions:

Return on Equity

Return on Equity (ROE) is a financial ratio that measures the profitability of a company relative to the equity held by its shareholders, indicating how effectively management uses shareholders' funds.

Market Rate

The current market rate for financial instruments with alike risk and duration.

Secured Bonds

Bonds backed by the issuer's pledge of specific assets as collateral to ensure repayment, making them less risky for investors.

Market Rate

The interest rate available to borrowers and savers in the overall or specific marketplace, often influenced by supply and demand, central bank policy, or other factors.