If a Stock's Dividend Is Expected to Grow at a Constant

question 47

Multiple Choice

If a stock's dividend is expected to grow at a constant rate of 5% a year,which of the following statements is CORRECT? The stock is in equilibrium.

• A)The expected return on the stock is 5% a year.
• B)The stock's dividend yield is 5%.
• C)The price of the stock is expected to decline in the future.
• D)The stock's required return must be equal to or less than 5%.
• E)The stock's price one year from now is expected to be 5% above the current price.

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Definitions:

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against an asset since it was acquired, up to a specific date.

Expense Recognition

The accounting principle of matching expenses with revenues in the period in which they are incurred to generate those revenues, ensuring accurate financial reporting.

Insurance Premium

The amount paid periodically to an insurer by the insured for covering their risk.

Insurance Expense

The cost recognized in accounting for premiums paid on insurance policies, which protect the company's assets or activities.