6. Expected returns, dividends, and growth Aa Aa E The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows: Po = Di (rs -9) Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. The capital gains yield on a stock that the investor already owns has a direct relationship with the firm's expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.85 at the end of the year. Its dividend is expected to grow at a constant rate of 9.00% per year. If Walter's stock currently trades for $24.00 per share, what is the expected rate of return? 15.48% 20.88% 10.19% 9.11% O Walter's dividend is expected to grow at a constant growth rate of 9.00% per year. What do you expect to happen to Walter's expected dividend yield in the future? It will stay the same. It will increase. It will decrease