Answer Happy

Constant Growth Stock Conceptual Overview: Explore how the value of a stock changes as a function of the discount interest rate. The blue star-step line depicts the value of future stock dividends. The orange star-step ine depicts the present value of those future dividends discounted by for a shock with and D of g-4%. Use the sider to changer, and observe the corresponding changes in the equatrium price of the stock Did (51) 25 20 15- 10- 0.5 Po-PVD, D W De(1+g) HE $1.151+0.04) 0.08-0.04 2-$29.90 powe
1. If f, increases to 10%, what would be the value of the constant growth stock? (Note: De is $1.15 and the expected constant growth rates- $29.90 4 b. $19.93 $10.87 d. Undetermined -Select 2. When r, increases from, say, 0% to 10%, the value of the constant growth stock: a. Increases because the interest rate is higher b. Decreases because its dividends are being discounted at a higher rate. c. Remains the same because it is a "constant growth stock d. Might either increase or decrease 3. Move the sider so that r. is 12%. If the stock were selling on the market for $15.50, would you buy 7 (Note: De is $1.15 and the expected growth constant rate 46) a. Yes, it is a bargain. b. No, the stock is overvalued, as the expected stock price is only $14.95. c. Not enough information to determine whether it would be a good buy. Select 4. The slider for r, is limited to a minimum of 4.1% so that r, is always greater than g. Hove the slider to the minimum and observe how the present value of t stock changes. Must be greater than g a. No reason f, needs to be greater than g because the formula adjusts the value of the stock appropriately. b. Yes, because if r, were not greater than g, then the graph would be too large to display easily. c. Yes, because if -g, then the formula divides by zero, producing an infinite value. -Select Save & Continue Content without saving