Q:
KLM Corporation shares just paid a dividend of $1.34. Earnings are expected to grow at 7% while the dividend payout ratio is fixed at 40%. If investors require a total rate of return of 13% on this stock, what would be a fair market value for this stock?
a) $13.14
b) $23.83
c) $22.33
d) $14.02
A:
The correct answer is: b)

2005 CFA Level 1 LOS: 14.3.b

RELATED FAQS

  1. A “normal market” is also called a (an): A) Inverted market b) Carrying charge market ...

    Free info on financial certification exams including study guides, exam questions, and much more!
  2. Which of the following is not a reason why a company might issue a stock dividend ...

    The correct answer is d. All of these are reasons for a company to issue a stock dividend, remember that this differs from ...
  3. What causes dividends per share to increase?

    Learn what the major factors are that can lead to changes in a company's dividend payouts and drive increases in dividends ...
  4. A customer has a short margin account. The account has equity of $15,000 ...

    Free info on financial certification exams including study guides, exam questions, and much more!
  5. I gave an answer on the test from my study guide that was scored wrong on the Series ...

    Learn more about potential causes of differences between the Series 63 exam and study guide questions. Find out how new questions ...
  6. What is the difference between yield and dividend?

    Learn how to differentiate between dividend yield and dividend return, and see why dividend yield is the more popular rate ...
RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Dividend Rate

    The total expected dividend payments from an investment, fund ...
  3. Target Payout Ratio

    A target payout ratio is a measure of what size a company's dividends ...
  4. Dividend Payout Ratio

    The percentage of earnings paid to shareholders in dividends. ...
  5. Stock Dividend

    A dividend payment made in the form of additional shares, rather ...
  6. Dividend Policy

    The policy a company uses to decide how much it will pay out ...
Trading Center