Author Question: The last dividend (Div0) is 1.80, the growth rate (g) is 6, and the required rate of return (r) is ... (Read 88 times)

NguyenJ · **on:** Jul 10, 2018

The last dividend (Div0) is 1.80, the growth rate (g) is 6, and the required rate of return (r) is 12. What is the stock price according to the constant growth dividend model?

A) 31.80
B) 30.80
C) 30.00
D) 15.00

Question 2

Your friend tells you that ABC Mutual Fund can beat the market return and has less risk than the market. Is this possible?

A) In the short-run, yes. In the long-run, no.
B) In the short-run, yes. In the long-run, yes.
C) In the short-run, no. In the long-run, no.
D) In the short-run, no. In the long-run, yes.

karmakat49 · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: A
Explanation: A) The Dividend Growth Model states that P0 = .
Inserting our values gives: P0 = = = = 31.80.

Answer to Question 2

A