Use the Dividend Growth Model to Determine the Required Rate

question 47

Multiple Choice

Use the dividend growth model to determine the required rate of return for equity.Your firm intends to pay a dividend of $1.50 per share one year from today.Further,the recent stock price is $31.82 per share,and you anticipate a growth rate in dividends of 4.00% per year for the foreseeable future.

• A)8.90%
• B)8.71%
• C)9.09%
• D)There is not enough information to answer this question.

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Definitions:

Substitution

The action of replacing one good or service with another based on changes in relative prices, incomes, or preferences.

Indifference Curve

A graph showing different combinations of two goods that provide the same level of utility or satisfaction to a consumer.

Utility

In economics, a measure of satisfaction, usefulness or value that an individual gains from consuming goods and services.

Consumption Bundle

A combination of goods and services selected by a consumer for personal use.