Q.4

Which of the following statements is CORRECT? The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years. If a stock has a required rate of return r, = 12% and its dividend is expected to grow at a constant rate of 5%, then the stock's dividend yield is also 5%. The stock valuation model, Po=D; (1, - g), can be used to value firms whose dividends are expected to decline at a constant rate, ie, to grow at a negative rate The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate The constant growth model cannot be used for a zero growth stock, wherein the dividend is expected to remain constant over time