Question
A stock is expected to pay a year-end dividend of $2.00 a share (D1 = $2.00). The dividend is expected to decline at a constant
A stock is expected to pay a year-end dividend of $2.00 a share (D1 = $2.00). The dividend is expected to decline at a constant rate of 5% per year (g = -5%). The companys expected and required rate of return is 15%. Which of the following statements is CORRECT? A. The companys current stock price is $20 B. The companys dividend yield 5 years from now is expected to be 10%. C. The companys expected capital gains yield is 5%. D. The companys stock price next year is expected to be $9.50 E. The constant growth model cannot be used because the growth rate is negative.
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