Question 15

Which of the following statements is CORRECT?

a. The constant growth model gives a constant capital gains yield investors expect to earn on a stock.

b. Two firms with the same expected dividend and growth rate must also have the same stock price.

c. It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant.

d. If a stock has a required rate of return rs = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stocks dividend yield is also 5%.

e. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.