Which of the Following Statements Is CORRECT

question 33

Multiple Choice

Which of the following statements is CORRECT?

• A) The constant growth model takes into consideration the capital gains investors expect to earn on a stock.
• B) Two firms with the same expected dividend and growth rates 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 stock's 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.

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Definitions:

Saving And Investment

The act of foregoing current consumption to put resources into assets or projects expected to generate future benefits or returns.

Loanable Funds

A term used in economics to describe the market where savers supply funds to borrowers, typically characterized by the interest rate.

Saving

The act of setting aside a portion of current income for future use, which could involve depositing money into bank accounts or investing in financial products.

Investment

Assigning funds with the anticipation of creating income or achieving financial gain.