Deck 8: Stocks, Stock Valuation, and Stock Market Equilibrium

Question 1

The constant growth DCF model used to evaluate the prices of common shares is essentially the same as the model used to find the price of perpetual preferred stock or any other perpetuity.

Answer 1

True

Question 2

If a firm's shareholders are given the preemptive right, this means that they have the right to call for a meeting to vote to replace the management. Without the preemptive right, dissident shareholders would have to seek a change in management through a proxy fight.

Answer 2

False

Question 3

According to the nonconstant growth model, the discount rate used to find the present value of the expected cash flows during the initial growth period is the same as the discount rate used to find the PVs of cash flows during the subsequent constant growth period.

Answer 3

True

Question 4

A proxy is a document giving one party the authority to act for another party, including the power to vote. Thus, a proxy can be an important tool relating to control of the firm.

Question 5

The cash flows associated with common shares are more difficult to estimate than those related to bonds due to the residual claims against the company.

Question 6

The total return on a share of stock refers to the dividend yield less any commissions paid when the stock is purchased and sold.

Question 7

The existence of dual-class shares allows a minority shareholder to have a big control of the firm.

Question 8

If security markets were truly strong-form efficient, one could never earn a realized return on a stock greater than the marginal investor's expected (and required) rate of return on the stock.

Question 9

A significant difference between a stock's market value and its intrinsic value indicates that financial markets are basically inefficient.

Question 10

Founders' shares are a type of dual-class shares owned by the firm's founders, generally with more votes per share than the other classes of common shares.

Question 11

When a new issue of common share is brought to market, it is the marginal investor who determines the price at which trade occurs.

Question 12

Dual-class shares differentiate different classes of common share. They are issued by companies to meet special needs, such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.

Question 13

The preemptive right gives current shareholders the right to purchase, on a pro rata basis, any new shares sold by the firm. This right helps protect them against both dilution of control and dilution of value.

Question 14

What would a firm's required rate of return do as a result of an increase in a firm's expected growth rate?

A) Increase
B) Decrease
C) remain constant
D) possibly increase, possibly decrease, or possibly have no effect

Question 15

When a corporation's shares are owned by a few individuals who are associated with the firm's management, we say that the share is "closely held."

Question 16

A publicly owned corporation is a company whose shares are held by the investing public, which may include other corporations as well as institutional investors.

Question 17

A proxy fight generally is a battle between management and a group of shareholders who want to install a new management team that will operate the firm differently, or possibly break it up or sell it. Under most companies' bylaws, the dissident group must obtain 80% or more of the votes in order to prevail.

Question 18

According to the basic DCF stock valuation model, the value an investor should assign to a share of stock is dependent on the length of time he or she plans to hold the stock.

Question 19

If two firms have the same current dividend and the same expected dividend growth rate, their stocks must sell at the same current price or else the market will not be in equilibrium.

Question 20

Closing stock market quotes as published in the business section of major newspapers represent the most reliable source of information used in choosing to buy or sell stock.

Question 21

Stock X has a required return of 12% and a dividend yield of 5%, and its dividend is expected to grow at a constant rate forever. Stock Y has a required return of 10%, a dividend yield of 3%, and its dividend is expected to grow at a constant rate forever. Both stocks currently sell for $25 per share. Which of the following statements is correct?

A) Stock Y pays a higher dividend per share than Stock X.
B) Stock X pays a higher dividend per share than Stock Y.
C) Stock Y has a lower expected growth rate than Stock X.
D) Stock Y has the higher expected capital gains yield.

Question 22

The expected return on Northeast Corporation's stock is 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is correct?

A) The stock's dividend yield is 7%.
B) The stock's dividend yield is 8%.
C) The current dividend per share is $4.00.
D) The stock price is expected to be $54 a share 1 year from now.

Question 23

Which of the following statements is correct?

A) The constant growth model takes into consideration the capital gains investors expect to earn on a stock.
B) Two firms with the same expected dividend and growth rate must also have the same stock price.
C) It is appropriate to use the constant growth model to estimate stock value even if the growth rate is never expected to become constant.
D) The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.

Question 24

Stock X is expected to pay a dividend of $3.00 at the end of the year, i.e., D₁ = $3.00, and that dividend is expected to grow at a constant rate of 6% a year. The stock currently trades at a price of $50 a share. Assume that the stock is in equilibrium, i.e., the stock's price equals its intrinsic value. Which of the following statements is correct?

A) The stock's required return is 10%.
B) The stock's expected dividend yield and growth rate are equal.
C) The stock's expected dividend yield is 5%.
D) The stock's expected capital gains yield is 5%.

Question 25

Stocks X and Y sell at the same price. Stock X has a required return of 12% while Stock Y's required return is 10%. Stock X's dividend is expected to grow at a constant rate of 6% a year, while Stock Y's dividend is expected to grow at a constant rate of 4%. If the market is in equilibrium so that expected returns equal required returns, which of the following statements is correct?

A) Stock X has a higher dividend yield than Stock Y.
B) Stock Y has a higher dividend yield than Stock X.
C) One year from now, Stock X's price is expected to be higher than Stock Y's price.
D) Stock Y has a higher capital gains yield.

Question 26

A stock is expected to pay a year-end dividend of $2.00, i.e., D₁ = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company's expected and required rate of return is 15%, which of the following statements is correct?

A) The company's current stock price is $20.
B) The company's dividend yield 5 years from now is expected to be 10%.
C) The constant growth model cannot be used because the growth rate is negative.
D) The company's stock price next year is expected to be $9.50.

Question 27

Companies can issue different classes of common share. Which of the following statements concerning share classes is correct?

A) All common shares, regardless of class, must have the same voting rights.
B) All firms have several classes of common share.
C) All common shares, regardless of class, must pay the same dividend.
D) Some class or classes of common share may be entitled to more votes per share than other classes.

Question 28

Which of the following statements is correct?

A) Growth stocks usually have relatively high payout ratio.
B) The stock valuation model, P₀ = D₁/(r_s - g), can be used for firms that have expected negative, but constant, growth rates.
C) The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
D) The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.

Question 29

Stocks A and B have the same required return and the same price, $25. Stock A's dividend is expected to grow at a constant rate of 10% per year, while Stock B's dividend is expected to grow at a constant rate of 5% per year. Which of the following statements is correct?

A) Stock A's expected dividend at t = 1 is only half that of Stock B.
B) Stock A has a higher dividend yield than Stock B.
C) Currently the two stocks have the same price, but over time Stock B's price passes that of Stock A.
D) Since Stock A's growth rate is twice that of Stock B, Stock A's future dividends will always be twice as high as Stock B's.

Question 30

Why is the preemptive right important to shareholders?

A) It allows managers to buy additional shares below the current market price.
B) It results in higher dividends per share.
C) It is included in every article of incorporation.
D) It protects the current shareholders against a dilution of their ownership interests.

Question 31

Which of the following statements is correct?

A) The dividend yield on a constant growth stock must be equal to the stock's expected total return less its expected capital gains return.
B) A stock's dividend yield can never exceed its expected growth rate.
C) A required condition for one to use the constant growth model is that the stock's expected growth rate exceeds its required rate of return.
D) Other things held constant, the higher a company's beta coefficient, the lower its required rate of return.

Question 32

In the opinion of a given investor, a share's expected return exceeds its required return. What does this suggest?

A) The investor thinks the share is experiencing supernormal growth.
B) The investor thinks the share should be sold.
C) The investor thinks the share is a good buy.
D) The investor thinks dividends are not likely to be declared.

Question 33

If a stock's dividend is expected to grow at a constant rate of 5% a year, which of the following statements is correct?

A) The expected return on the stock is 5% a year.
B) The stock's dividend yield is 5%.
C) The stock's required return must be equal to or less than 5%.
D) The stock's price 1 year from now is expected to be 5% above the current price.

Question 34

Stock A has a beta of 1.1 and Stock B's beta is 0.9. The market risk premium is 6%, and the risk-free rate is 6.3%. Both stocks have a constant dividend growth rate of 7%. If the market is in equilibrium, which of the following statements is correct?

A) Stock A must have a higher stock price than Stock B.
B) Stock A must have a higher dividend yield than Stock B.
C) Stock B must have the higher required return.
D) Stock B could have the higher expected return.

Question 35

If two constant growth stocks have the same price and the same required rate of return, which of the following statements is correct?

A) If one stock has a higher dividend yield, it will also have a lower dividend growth rate.
B) The two stocks have the same dividend growth rate.
C) The two stocks have the same dividend yield.
D) The stock with the higher dividend yield will have the higher dividend growth rate.

Question 36

Stocks A and B have the same price, but Stock A has the higher required rate of return. Which of the following statements is correct?

A) If Stock A has a lower dividend yield than Stock B, its expected capital gains yield must be higher than Stock B's.
B) Stock B must have a higher dividend yield than Stock A.
C) Stock A must have a higher dividend yield than Stock B.
D) If Stock A has a higher dividend yield than Stock B, its expected capital gains yield must be lower than Stock B's.

Question 37

Which statement regarding the Efficient Markets Hypothesis is true?

A) The Efficient Markets Hypothesis suggests that the market does not price stocks fairly; hence, managers should make decisions based on the premise that firms' stocks are undervalued or overvalued.
B) An individual who has information about past stock prices would be able to profit from this information if weak-form market efficiency exists.
C) For the Efficient Markets Hypothesis to hold true, every individual investor must be "rational."
D) Semistrong-form market efficiency means that stock prices reflect all public, but not necessarily all private, information.

Question 38

Which statement regarding market efficiency is true?

A) Semistrong-form market efficiency implies that as soon as any public or private information comes into being it is incorporated into stock prices.
B) Weak-form market efficiency implies that recent trends in stock prices are of no use in predicting future stock prices.
C) Market efficiency implies that all stocks should have the same expected return.
D) According to strong-form market efficiency, insiders would find it possible to consistently earn abnormal returns in the stock market even if they have superior knowledge about the company.

Question 39

Most studies of stock market efficiency suggest that the stock market is highly efficient in the weak form and reasonably efficient in the semistrong form. Based on these findings, which of the following statements is correct?

A) Information disclosed in companies' most recent annual reports can be used to consistently beat the market.
B) The stock price for a company has been increasing for the past 6 months. Based on this information, it must be true that the stock price will also increase during the current month.
C) Information you read in a daily newspaper such as National Post today cannot be used to select stocks that will consistently beat the market.
D) Managers who have inside information that is not available to the public cannot consistently earn abnormal returns, i.e., returns that are higher than those predicted by the SML.

Question 40

Stock A has a required return of 10% and a price of $25, and its dividend is expected to grow at a constant rate of 7% per year. Stock B has a required return of 12% and a price of $40, and its dividend is expected to grow at a constant rate of 9% per year. Which of the following statements is correct?

A) If the stock market were efficient, these two stocks would have the same price.
B) The two stocks have the same dividend yield.
C) If the stock market were efficient, these two stocks would have the same expected return.
D) The two stocks have the same expected capital gains yield.

Question 41

Assume that markets are semistrong efficient, but not strong-form efficient. Which of the following statements is correct?

A) Each common stock has an expected return equal to that of the overall market.
B) Investors may be able to earn returns above those predicted by the SML if they have access to information that has not been publicly revealed.
C) Investors can expect to earn returns above those predicted by the SML if they have access to public information.
D) Investors should expect to earn more than the returns that are predicted by the SML, because if they do not, they should not invest in the stock market.

Question 42

If D₁ = $1.75, g (which is constant) = 4.5%, and P₀ = $46, what is the stock's expected dividend yield for the coming year?

A) 3.26%
B) 3.43%
C) 3.61%
D) 3.80%

Question 43

If D₁ = $1.50, g (which is constant) = 6.5%, and P₀ = $56, what is the stock's expected capital gains yield for the coming year?

A) 6.50%
B) 6.83%
C) 7.17%
D) 7.52%

Question 44

If D₀ = $2.75, g (which is constant) = 3%, and P₀ = $36, what is the stock's expected total return for the coming year?

A) 10.07%
B) 10.33%
C) 10.60%
D) 10.87%

Question 45

A share of common stock has just paid a dividend of $2.00. If the expected long-run growth rate for this stock is 5.0%, and if investors' required rate of return is 10.5%, what is the stock price?

A) $35.39
B) $36.30
C) $37.23
D) $38.18

Question 46

Which of the following statements is correct?

A) A tracking, or target, stock is the same as the stock of an independent stand-alone company.
B) If a company has dual-class shares, Class A and Class B, the shares may pay different dividends, but they must have the same voting rights.
C) The preemptive right is a provision in the article of incorporation that gives common shareholders the right to purchase (on a pro rata basis) new issues of the firm's common stock.
D) The stock valuation model, P₀ = D₁/(r_s - g), cannot be used for firms that have negative growth rates.

Question 47

Which statement regarding preferred stock is true?

A) A major disadvantage of financing with preferred stock is that preferred stockholders typically have super-normal voting rights.
B) Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common.
C) The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock.
D) One of the disadvantages to a corporation of owning preferred stock is that 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income would be tax free.

Question 48

What must occur for a stock to be in equilibrium, that is, for there to be no consistent pressure for its price to depart from its current level?

A) The expected future return must be less than the most recent past realized return.
B) The past realized return must be equal to the expected return during the same period.
C) The required return must equal the realized return in all periods.
D) The expected future returns must be equal to the required return.

Question 49

Which of the following statements is correct?

A) If a stock's beta increased but its growth rate remained the same, then the new equilibrium price of the stock will be higher (assuming dividends continue to grow at the constant growth rate).
B) Market efficiency says that the actual realized returns on all stocks will be equal to the expected rates of return.
C) Weak-form efficiency suggests that tape watchers and chartists can earn profits by discovering patterns as to when stock prices rise or fall.
D) An implication of the semistrong form of the efficient markets hypothesis is that you cannot consistently benefit from trading on information published in the company annual reports.

Question 50

If D₀ = $2.25, g (which is constant) = 3.5%, and P₀ = $50, what is the stock's expected dividend yield for the coming year?

A) 4.42%
B) 4.66%
C) 4.89%
D) 5.13%

Question 51

A common share just paid a dividend of D₀ = $1.75. The required rate of return is r_s = 12.0%, and the constant growth rate is g = 4.0%. What is the current share price?

A) $21.09
B) $21.63
C) $22.18
D) $22.75

Question 52

Which statement regarding the efficient markets hypothesis is true?

A) If a market is strong-form efficient, this implies that the returns on a firm's bonds and stocks should be identical.
B) If a market is weak-form efficient, this implies that all public information is rapidly incorporated into market prices.
C) If your uncle earned a return higher than the overall stock market last year, this is evidence that the stock market is inefficient.
D) If a market is weak-form efficient, this implies that analyzing its past price history will not enable one to earn an above-normal rate of return on the stock in the future.

Question 53

If the stock market is semistrong efficient, which of the following statements is correct?

A) All stocks should have the same expected returns; however, they may have different realized returns.
B) Investors can outperform the market if they have access to information that has not yet been publicly revealed.
C) In equilibrium, stocks and bonds should have the same expected returns.
D) All stocks should have the same expected return.

Question 54

If markets are in equilibrium, which of the following will occur?

A) Each stock's expected return should equal its realized return as seen by the marginal investor.
B) Each stock's expected return should equal its required return as seen by the marginal investor.
C) All stocks should have the same expected return as seen by the marginal investor.
D) The expected and required returns on stocks and bonds should be equal.

Question 55

Stock X has a required return of 10%, while Stock Y has a required return of 12%. Which of the following statements is correct?

A) If the market is in equilibrium, and if Stock Y has the lower expected dividend yield, then it must have the higher expected growth rate.
B) If Stock X and Stock Y have the same current dividend and the same expected dividend growth rate, then Stock Y must sell for a higher price.
C) The stocks must sell for the same price.
D) Stock Y must have a higher dividend yield than Stock X.

Question 56

If D₁ = $1.25, g (which is constant) = 5.5%, and P₀ = $44, what is the stock's expected total return for the coming year?

A) 7.73%
B) 7.93%
C) 8.13%
D) 8.34%

Question 57

Assuming that markets are semistrong efficient, which of the following statements is correct?

A) All stocks should have the same expected return.
B) Past stock prices can be successfully used to forecast future stock returns.
C) Investors' most likely returns are those predicted by the SML, but one should not expect to do any better unless he or she has either good luck or access to information that is not publicly available.
D) Investors should expect to earn more than the returns that are predicted by the SML, because if they do not, they should not invest in the stock market.

Question 58

Which statement regarding preferred stocks is true?

A) Preferred stockholders have a priority to income but not to liquidation proceeds over bondholders in the event of bankruptcy.
B) The preferred stock of a given firm is generally less risky to investors than the same firm's common stock.
C) Preferred dividends are not generally cumulative.
D) A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.

Question 59

Which statement regarding the efficient markets hypothesis is true?

A) If the stock market is weak-form efficient, then one cannot outperform the market even if he or she has private information.
B) If the stock market is semistrong-form efficient, then the expected return on stocks and bonds must be the same.
C) If the stock market is strong-form efficient, then high beta stocks must have the same expected return as low beta stocks.
D) Even though the Efficient Markets Hypothesis (EMH) assumes that markets behave as if all investors were rational, under the EMH it is still possible to have some irrational investors in a rational market.

Question 60

A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is r_s = 12.5%, and the expected constant growth rate is g = 8.5%. What is its current price?

A) $17.82
B) $18.28
C) $18.75
D) $19.22

Question 61

McDonnell Manufacturing is expected to pay a dividend of $1.50 per share at the end of the year (D₁ = $1.50). The stock sells for $34.50 per share, and its required rate of return is 11.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?

A) 6.63%
B) 6.80%
C) 6.97%
D) 7.15%

Question 62

Rentz RVs Inc. (RRV) is currently enjoying relatively high growth because of a surge in the demand for recreational vehicles. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which high gas prices will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company's last dividend, D₀, was $1.25. RRV's beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?

A) $26.77
B) $27.89
C) $29.05
D) $30.21

Question 63

Goode Inc.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Goode's dividend is expected to grow at a constant rate of 7.00% per year. What was Goode's last dividend, D₀?

A) $0.95
B) $1.05
C) $1.16
D) $1.27

Question 64

You have been assigned the task of using the free cash flow model to estimate Petry Corporation's intrinsic value. Petry's WACC is 10.00%, its end-of-year free cash flow (FCF) is expected to be $150.0 million, the FCFs are expected to grow at a constant rate of 6.00% a year in the future, the company has $200 million of long-term debt plus preferred stock, and it has 50 million shares of common stock outstanding. What is Petry's estimated intrinsic value per share of common stock?

A) $66.12
B) $68.52
C) $71.00
D) $73.49

Question 65

Gary Wells Inc. plans to issue perpetual preferred stock with an annual dividend of $6.50 per share. If the required return on this preferred stock is 6.5%, at what price should the stock sell?

A) $92.69
B) $95.06
C) $97.50
D) $100.00

Question 66

Clinton's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $50.00, what is its effective annual (NOT nominal) rate of return?

A) 7.52%
B) 7.76%
C) 8.00%
D) 8.24%

Question 67

McLaughlin Inc.'s stock has a required rate of return of 10.50%, and it sells for $67.50 per share. McLaughlin's dividend is expected to grow at a constant rate of 7.00% per year. What is the expected year-end dividend, D₁?

A) $2.13
B) $2.36
C) $2.60
D) $2.86

Question 68

The Isberg Company just paid a dividend of $0.80 per share, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.25, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company's current stock price?

A) $19.95
B) $20.45
C) $20.96
D) $21.49

Question 69

Carter's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $50.00, what is its nominal (NOT effective) annual rate of return?

A) 7.41%
B) 7.61%
C) 7.80%
D) 8.00%

Question 70

The Upton Company's last dividend was $1.75. Its dividend growth rate is expected to be constant at 18.00% for 2 years, after which dividends are expected to grow at a rate of 6.00% forever. Upton's required return (r_s) is 12.00%. What is Upton's current stock price?

A) $37.15
B) $38.10
C) $39.06
D) $40.03

Question 71

Ewert Enterprises' stock currently sells for $30.50 per share. The stock's dividend is projected to increase at a constant rate of 4.50% per year. The required rate of return on the stock, r_s, is 10.00%. What is Ewert's expected price 3 years from today?

A) $31.61
B) $32.43
C) $33.26
D) $34.81

Question 72

You must estimate the intrinsic value of Tsetseko Technologies' stock. Tsetseko's end-of-year free cash flow (FCF) is expected to be $17.50 million, and it is expected to grow at a constant rate of 7.00% a year thereafter. The company's WACC is 10.00%. Tsetseko has $125.00 million of long-term debt plus preferred stock, and there are 15.00 million shares of common stock outstanding. What is Tsetseko's estimated intrinsic value per share of common stock?

A) $28.16
B) $29.33
C) $30.56
D) $31.78

Question 73

The Wei Company's last dividend was $1.75. The dividend growth rate is expected to be constant at 1.50% for 2 years, after which dividends are expected to grow at a rate of 8.00% forever. Wei's required return (r_s) is 12.00%. What is Wei's current share price?

A) $41.83
B) $43.08
C) $44.38
D) $45.71

Question 74

WWW Servers just paid a dividend of D₀ = $1.00. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on WWW's stock is 9.00%. What is the best estimate of the stock's current intrinsic value?

A) $31.50
B) $32.31
C) $33.14
D) $33.99

Question 75

Sorenson Corp.'s expected year-end dividend is D₁ = $1.50, its required return is r_s = 12.00%, its dividend yield is 8.00%, and its growth rate is expected to be constant in the future. What is Sorenson's expected stock price in 7 years, i.e., what is P₇?

A) $24.67
B) $25.91
C) $27.20
D) $28.56

Question 76

The Nikko Company's last dividend was $1.50. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If Nikko's required return (r_s) is 11%, what is the company's current share price?

A) $36.69
B) $37.82
C) $38.99
D) $40.20

Question 77

E.M. Roussakis Inc.'s stock currently sells for $45 per share. The stock's dividend is projected to increase at a constant rate of 3.75% per year. The required rate of return on the stock, r_s, is 15.50%. What is Roussakis' expected price 5 years from now?

A) $50.14
B) $51.42
C) $52.74
D) $54.09

Question 78

The Zumwalt Company is expected to pay a dividend of $2.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 5.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price?

A) $42.25
B) $43.31
C) $44.39
D) $45.50

Question 79

Prock Petroleum's stock has a required return of 13%, and the stock sells for $50 per share. The firm just paid a dividend of $1.00, and the dividend is expected to grow by 30% per year for the next 4 years, so D₄ = $1.00(1.30)⁴ = $2.8561. After t = 4, the dividend is expected to grow at a constant rate of X% per year forever. What is the stock's expected constant growth rate after t = 4, i.e., what is X?

A) 7.46%
B) 7.85%
C) 8.26%
D) 8.70%

Question 80

Schnusenberg Corporation just paid a dividend of $0.65 per share, and that dividend is expected to grow at a constant rate of 7.00% per year in the future. The company's beta is 0.95, the required return on the market is 10.50%, and the risk-free rate is 5.00%. What is the company's current stock price?

A) $21.57
B) $22.11
C) $22.66
D) $23.22