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The analysts predict that the price of corporation's XYZ stock one year from now will be
$22. XYZ announced that is not going to pay dividends next year. You decide that you would be
satisfied to earn a 10 percent on the investment on this stock, thus, this stock is worth ____
for you now.
A) $20
B) $22
C) $24
D) $18
Answer: A
Diff: 3 Type: MC Page Ref: 138
Skill: Applied
Objective List: 7.1 Illustrate how stocks are valued as the present value of dividends
The analysts predict that the price of corporation's XYZ stock one year from now will be
$120. XYZ announced that is not going to pay dividends next year. You decide that you would
be satisfied to earn a 20 percent on the investment on this stock, thus, this stock is worth
____ for you now.
A) $100
B) $120
C) $130
D) $90
Answer: A
Diff: 3 Type: MC Page Ref: 138
Skill: Applied
Objective List: 7.1 Illustrate how stocks are valued as the present value of dividends
General Electric announces that it is going to cut its dividends by $0.02 per share in the
future. This, everything else remaining the same, will cause its current stock price to ____.
A) increase
B) decrease
C) remain the same
D) fluctuate
Answer: B
Diff: 2 Type: MC Page Ref: 138
Skill: Applied
Objective List: 7.1 Illustrate how stocks are valued as the present value of dividends
In the generalized dividend model, if the expected sales price is in the distant future
____.
A) it does not affect the current stock price
B) it is more important than dividends in determining the current stock price
C) it is equally important with dividends in determining the current stock price
D) it is less important than dividends but still affects the current stock price
Answer: A
Diff: 2 Type: MC Page Ref: 138 - 139
Skill: Recall
Objective List: 7.1 Illustrate how stocks are valued as the present value of dividends