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Suppose your calculations tell you that the market expects a growth rate of 5% for a particular companys earnings and that the discount rate applied
- Suppose your calculations tell you that the market expects a growth rate of 5% for a particular companys earnings and that the discount rate applied to the stocks cash flows is 8%. Your, however, believe its earnings will grow by at least 6% per year over the next few years (and then 5%). If you purchase the stock and hold it for a year, should your calculations and expectations prove correct, your ROR will be:
- below 5%
- between 5% and 6%
- between 6% and 8%
- above 8%
- cannot say without knowledge of the payout ratio, as dividends form part of ROR
D
I KNOW the answer is D but can someone please describe why that's the answer
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