A firm has a current price of $40 a share, an expected growth rate of 11 percent and expected dividend per share (D1) of $2. Given its risk you have a required rate of return for it of 12 percent. Assuming that you expect the stock price to increase to $42 during the investment period, your expected rate of return and decision would be:
A)10% -do not buy
B)12%- do not buy
C)14% -buy
D)16% - buy
E)18% - buy

Question

Quizplus · Accepted Answer

The Answer of A firm has a current price of $40 a share, an expected growth rate of 11 percent and expected dividend per share (D1) of $2. Given its risk you have a required rate of return for it of 12 percent. Assuming that you expect the stock price to increase to $42 during the investment period, your expected rate of return and decision would be:
A)10% -do not buy
B)12%- do not buy
C)14% -buy
D)16% - buy
E)18% - buy

A Firm Has a Current Price of $40 a Share