"The Gordon model assumes a varying required rate of return for the stock; that is, the required rate of return changes from period to period." True or false?

Select one:

a. True

b. False

Year	0	1
Revenue		800.00
Fixed costs		150.00
Variable costs		200.00
Add. investment in NWC		10.00
Add. investment in operating long-term assets		70.00
Depreciation		60.00
Interest expenses		35.00
Newly issued debt		25.00
Principle repayments		15.00
Market value of the firm:	Price
	per share	No. of shares	Market value
Short-term debt			100.00
Long-term debt			600.00
Preferred stock	10.00	10	100.00
Common stock	18.00	100	1,800.00
Total			2,600.00
Cost of equity (Rs)	0.1400
Tax rate	0.40
Growth rate per year from year 1 through year 5	0.12
Growth rate after year 5	0.05

Select one:

a. 33.53

b. 24.11

c. 30.86

d. 27.95

"Assume that the BNM stock is currently overpriced, and you expect the price to go back to the equilibrium level at time 2. Under these conditions, the average expected rate of return for this two-year period (i.e., from t=0 to t=2) would be higher than the required rate of return of the stock." True or false?

Select one:

a. True

b. False