What the share price at the beginning of the second year

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Problem 1: The required rate of return ...

a. tends to be high for large, stable companies

b. is mostly due to capital gains

c. is typically driven by the dividend yield

d. is the market's expectation of the rate of return in the future

Problem 2: In the Gordon Growth Model, the share price at the beginning of the second year can be computed as

a. D3 / (r - g)

b. D2 / (r - g)

c. D1 / (r - g)

d. None of these.

Problem 3: The rate at which the price of a dividend-paying asset increases is most aptly called the

a. capital return

b. capital gains rate

c. required return

d. cost of capital

Problem 4: It is hard to value a young, non-dividend paying company using the DDM approach because ...

a. the company will likely never pay dividends

b. dividends, once initiated, will likely be volatile

c. it is likely that the growth rate is above the required rate of return for the first few years

d. the eventual size of dividends, once initiated, is very unclear

Reference no: EM132664532

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