KDP's most recent dividend was $2.00 per share and is selling today in the market for $70.The dividend is expected to grow at a rate of 7% per year for the foreseeable future.If the market return is 10% on investments with comparable risk, should you purchase the shares?

Question

Quizplus · Accepted Answer

The correct answer is C because the share is underpriced at $1.33. The dividend yield is 2.86% ($2.00/$70), which is less than the market return of 10%. This means that the share is undervalued and should be purchased.

KDP's Most Recent Dividend Was $2