This question-specific review guide is tied to the answer reasoning for a PracticeTestVault item. Use it after you answer the question so the review stays focused on what the prompt actually tested.
What this question is testing
Objective: Equity valuation – dividend discount models
Prompt focus: A company is expected to pay a dividend of 2.50 dollars next year. Dividends are expected to grow at a constant 4 percent indefinitely. If the required return on equity is 9 percent, what is the intrinsic value per share using the…
Why the correct answer works
50.00 dollars
Value equals D1 divided by (r minus g): 2.50 divided by 0.05 equals 50 dollars.
Why the tempting wrong answer fails
27.78 dollars results from dividing 2.50 by 0.09, ignoring the growth rate in the denominator.
Plain-language takeaway
Use the rationale to connect the prompt clue, the correct choice, and the tested objective before retaking a similar item.
Simple analogy
Think of equity valuation – dividend discount models like following a short checklist: identify the clue, confirm the rule, and then make the move that fits this exact scenario.
How to review it before a retake
- Underline the command word and name what the question is asking before rereading the choices.
- Compare the correct answer against the closest distractor and write the exact detail that separates them.
- Retest this objective with a fresh question without looking at the rationale first.