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 5% a year forever (g = -5%). If the company is in equilibrium and its expected and required rate of return is 15%, then which of the following statements is CORRECT? a. The constant growth model cannot be used because the growth rate is negative. b. The company's dividend yield 5 years from now is expected to be 10%. c. The company's current stock price is $20. O d. The company's expected capital gains yield is 5%. e. The company's expected stock price at the beginning of next year is $9.50.
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 5% a year forever (g = -5%). If the company is in equilibrium and its expected and required rate of return is 15%, then which of the following statements is CORRECT? a. The constant growth model cannot be used because the growth rate is negative. b. The company's dividend yield 5 years from now is expected to be 10%. c. The company's current stock price is $20. O d. The company's expected capital gains yield is 5%. e. The company's expected stock price at the beginning of next year is $9.50.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 16MC
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