1. Which of the follow best describes intrinsic value?
a) Intrinsic value is the market price of any security or asset.
b) Intrinsic value is the long-term, fundamental price of a company’s stock assuming that it incorporates all available information about the company’s current and long-term plans and opportunities.
c) Intrinsic value is the value any of us places on things of personal interest to us. It consists of the nonmoney value that is often hard to translate into dollars.
2. A stock you have been following for a while is priced around $48.50. Its most recently paid dividend was $2.65, and recently management has made of fuss of growing that dividend by 2.0% per year.
For the past few years, you have been able to earn a mostly stead 8.0% return on your funds invested in stocks. Given that, what is a decent price you would be willing to pay for this stock?
a) about $45.05
b) about $33.79
c) about $44.17