Besides representing the expected growth rate in dividends, g equals

• A. the expected percentage change in stock price each year.
• B. the expected change in the firms dividend yield.
• C. the expected growth in the firms P/E ratio.
• D. one minus the firms retention ratio.

2. Which of the following statements concerning the constant dividend growth rate model is (are) correct? STATEMENT I The constant growth rate model implies that a stocks price will increase at the same rate at which dividends are increasing. STATEMENT II The model works best when the dividend growth rate exceeds the required rate of return.

• A. I only
• B. II only
• C. Both I and II
• D. Neither I nor II