Purchase Solution

# An increase in a firm's expected growth rate would cause the

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An increase in a firm's expected growth rate would cause the firm's stock price to

a. Increase.

b. Decrease.

c. Fluctuate.

d. Remain constant.

e. Possibly increase, possibly decrease, or possibly remain unchanged.

Stewart Industries expects to pay a \$3.00 per share dividend on its common stock at the end of the year (D1 = \$3.00). The dividend is expected to grow 25 percent a year until t = 3, after which time the dividend is expected to grow at a constant rate of 5 percent a year (i.e., D3 = \$4.6875 and D4 = \$4.9219). The stock's beta is 1.2, the risk-free rate of interest is 6 percent, and the rate of return on the market is 11 percent. What is the company's current stock price?

a. \$29.89

b. \$30.64

c. \$37.29

d. \$53.69

e. \$59.05

##### Solution Summary

An increase in a firm's expected growth rate would cause the firm's stock price to

a. Increase.

b. Decrease.

c. Fluctuate.

d. Remain constant.

e. Possibly increase, possibly decrease, or possibly remain unchanged.

Stewart Industries expects to pay a \$3.00 per share dividend on its common stock at the end of the year (D1 = \$3.00). The dividend is expected to grow 25 percent a year until t = 3, after which time the dividend is expected to grow at a constant rate of 5 percent a year (i.e., D3 = \$4.6875 and D4 = \$4.9219). The stock's beta is 1.2, the risk-free rate of interest is 6 percent, and the rate of return on the market is 11 percent. What is the company's current stock price?

a. \$29.89

b. \$30.64

c. \$37.29

d. \$53.69

e. \$59.05

##### Solution Preview

An increase in a firm's expected growth rate would cause the firm's stock price to

a. Increase. XX correct

b. Decrease.

c. Fluctuate.

d. Remain constant.

e. Possibly increase, possibly decrease, or possibly remain unchanged.

-- the rate of return would be ...

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