CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

What would Jackie pay for a stock that is expected to pay a $1.50 dividend in one year if the expected dividend growth rate is 3% and she requires a 16% return on her investment? Jackie would pay ______.

A. $13.14
B. $12.43
C. $11.54
D. $14.30
E. $12.33
Correct Answer: C

User Contributed Comments 10

User Comment
Rajain Why C 1.5/(0.16-0.03) = 11.5384
cfahanoi Expected devidend = D1 => V = 1.5/(.16-.03) = 11.54
rfvo Remember expected dividend, so no need to multiply growth. Current dividend multiply by growth rate.
fmhp Thank you rfvo: good hint!
moneyguy tricky one.
Jamberto wouldn't it be: (D*1+G)/(R-G) = (1.50*1.03)/(.16-.03) = 11.88 ???
jonan203 jamberto:

no, 1.5 is the future dividend that has NOT been paid, which implies that the previous dividend was 1.45.

[1.45(1.03)] / (.16 - .03) = 11.54
tochiejehu D1 =Expected dividend=1.50 and apply d constant growth model
Inaganti6 hahaha this is tricky ?
MathLoser No, it is not.
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