the economics of money, banking, and financial markets

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24. Using the Gordon growth formula, if D 1 is $2.00, ke is 12 percent or 0.12, and g is 10

percent or 0.10, then the current stock price is ____.
A) $20
B) $50
C) $100
D) $150
Answer: C
Diff: 2 Type: MC Page Ref: 140
Skill: Applied
Objective List: 7.1 Illustrate how stocks are valued as the present value of dividends

25. Using the Gordon growth formula, if D 1 is $1.00, ke is 10 percent or 0.10, and g is 5 percent

or 0.05, then the current stock price is ____.
A) $10
B) $20
C) $30
D) $40
Answer: B
Diff: 2 Type: MC Page Ref: 140
Skill: Applied
Objective List: 7.1 Illustrate how stocks are valued as the present value of dividends

26. 
    

    One of the assumptions of the Gordon Growth Model is that dividends will continue growing
    at ____ rate.
    A) an increasing
    B) a fast
    C) a constant
    D) an escalating
    Answer: C
    Diff: 2 Type: MC Page Ref: 140
    Skill: Recall
    Objective List: 7.1 Illustrate how stocks are valued as the present value of dividends

    
    


27. 
    

    In the Gordon Growth Model, the growth rate is assumed to be ____ the required return
    on equity.
    A) greater than
    B) equal to
    C) less than
    D) proportional to
    Answer: C
    Diff: 2 Type: MC Page Ref: 140
    Skill: Recall
    Objective List: 7.1 Illustrate how stocks are valued as the present value of dividends