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In competitive capital markets,

Multiple Choice

• securities with higher risk are priced to offer a lower expected return.

• all securities with equivalent risk are priced to offer the same expected return.

• all securities are priced to offer the same expected return.

• None of the above.

Stock Valuation Dividend Growth Model Stock Positions II. GRAPH INFORMATION Stock Values for Different Horizons Value Per Share (5) 55 50 An 8% required return, 51.50 dividend, and a stock price of $50 is close to the common stock of Coca Cola Company in December of 2017. According to Morningstar, Coke paid a dividend of $1.48 per share in 2017 with a stock price of $45.82 per share. Using analysts' growth expectations of 4.8% from Yahoo! Finance, the expected return is 8.03% 45 40 35 30 Terminal: $48.61 Dividend: $1.39 25 20 15 10 5 0 1 2 3 10 20 30 50 100 Investment Horizon (Years) PV (Dividend) PV (Terminal Price) CALCULATIONS FORMULA VARIABLES Required Rate of Return (R) Dividend Growth Rate (9) 8% 5% D Po $1.50 8% - 5% $50 Annual Dividend R-9 $1.50 $50.00 Ourrent Stock Price