If investor's expect a 15% rate of return on their investment, they will be indifferent between a $1.00 dividend received immediately or
A) $1.15 received at the end of the year.
B) $1.00 received later.
C) $0.87 received at the end of the year.
D) $1.00 increase in the stock price a year later.

Question

Quizplus · Accepted Answer

Investors expect a rate of return of 15%, so they would prefer to receive $1.15 a year from now compared to $1.00 today. Therefore, option A is the best choice as it offers the same return as receiving $1.00 immediately. Option B and D are not as desirable since the investor is not receiving any additional return for delaying the payment. Option C offers a rate of return lower than the expected 15%, so it is not the best choice.

If Investor's Expect a 15% Rate of Return on Their