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Davis wants to buy shares of Epoch Corporation. If Davis uses a zero growth model, a desired rate of return of 20%, and a dividend of $10, what was Epoch's price?
a. $20
b. $100
c. $50
d. $2
答案:C
Explanation
Choice “c” is correct. Using a zero growth model, the price of a company's stock is equal to the dividend divided by the discount rate. P = D/R. In this case P = $10/20%. P = $50.
Choice “d” is incorrect. Price is not equal to 20% of the dividend.
Choice “a” is incorrect. Price is not equal to $20. The price is $50 per above.
Choice “b” is incorrect. Price is not equal to $100. The price is $50 per above.
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