Question

1. suppose that company abc's last dividend was $5 per share, and company def's last dividend was $10 per share. analysts expect that company abc's dividend will grow at a constant rate of 2%, and company def's dividend will grow at a constant rate of 3%. which of the following must be true? a. the stock price of company abc is higher than that of company def b. the stock price of company def is higher than that of company abc c. company def's growth rate must decline at some point. d. given this information, no conclusion can be reached about the prices of company abc and def.

Answer 1

No conclusion can be reached about the prices of company ABC and DEF's stocks using only their last dividend payment amounts and growth rates because stock prices are influenced by multiple factors.

Step-by-step explanation:

Based on the information provided, no conclusion can be reached about the stock prices of company ABC and company DEF simply from their dividend amounts and growth rates. The dividend is only one component of an investor's rate of return, which also includes capital gains from selling the stock at a higher price. An investor's expectations include both dividends and potential capital appreciation.

A company's stock price is determined by numerous factors, including but not limited to, earnings, market perception, overall economic conditions, and more. Thus, just knowing the last dividend payment and the dividend growth rates doesn't provide enough information to ascertain the current stock price of either company.