Seeing is believing!
Before you order, simply sign up for a free user account and in seconds you'll be experiencing the best in CFA exam preparation.
Basic Question 3 of 16
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 ______.
B. $12.43
C. $11.54
D. $14.30
E. $12.33
A. $13.14
B. $12.43
C. $11.54
D. $14.30
E. $12.33
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. |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models
calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate
identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate
explain advantages and disadvantages of each category of valuation model
CFA® 2025 Level I Curriculum, Volume 3, Module 8.