If the Expected ROE on Reinvested Earnings Is Equal to K

question 97

Multiple Choice

If the expected ROE on reinvested earnings is equal to k, the multistage DDM reduces to

• A)V₀ = (Expected dividend yield in year 1)/k.
• B)V₀ = (Expected EPS in year 1)/k.
• C)V₀ = (Treasury bond yield in year 1)/k.
• D)V₀ = (Market return in year 1)/k. If ROE = k, no growth is occurring; b = 0; EPS = DPS.

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