If the present value equation used to calculate the price of a stock you are considering buying is 7 / (0.04 - 0.03), which of the following is correct, assuming that dividends will grow at a constant rate?
A) The stock price is 7, the dividend growth rate is 3 percent, and the interest rate is 1 percent.
B) The stock price is 700, the dividend growth rate is 3 percent, and the interest rate is 4 percent.
C) The dividend is 7 per share, the dividend growth rate is 1 percent, and the interest rate is 4 percent.
D) The dividend is 7 per share, the dividend growth rate is 4 percent, and the interest rate is 3 percent.
Question 2
If the present value equation used to calculate the price of a stock you are considering buying is 12 / (0.05 - 0.02), which of the following is correct, assuming that dividends will grow at a constant rate?
A) The dividend is 12 per share, the dividend growth rate is 5 percent, and the interest rate is 2 percent.
B) The dividend is 12 per share, the dividend growth rate is 2 percent, and the interest rate is 5 percent.
C) The stock price is 12, the dividend growth rate is 5 percent, and the interest rate is 3 percent.
D) The stock price is 12, the dividend growth rate is 2 percent, and the interest rate is 5 percent.
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