You wish to earn a return of 10% on each of two stocks, C and D.Each of the stocks is expected to pay a dividend of $2 in the upcoming year.The expected growth rate of dividends is 9% for stock C and 10% for stock D.The intrinsic value of stock C
A)will be greater than the intrinsic value of stock D.
B)will be the same as the intrinsic value of stock D.
C)will be less than the intrinsic value of stock D.
D)will be the same or greater than the intrinsic value of stock D.
E)None of the options

Question

Quizplus · Accepted Answer

PV₀ = D1/(k - g); given that dividends are equal, the stock with the higher growth rate will have the higher value.

You Wish to Earn a Return of 10% on Each