Question
A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of
A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 6% a year forever (g = -6%). If the company is in equilibrium and its 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 9%. C. The constant growth model cannot be used because the growth rate is negative. D. The companys expected capital gains yield is 6%. E. The companys expected stock price at the beginning of next year is $8.95.
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