Which of the Following Statements Is CORRECT

question 40

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 rate 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:

Price-Taking Farmer

An individual farmer who does not have the ability to set the prices for their goods but instead accepts the market price.

Corn Output

The total quantity of corn produced within a given period, often measured in bushels or tons.

Profits

The financial gain obtained when the amount earned from a business activity exceeds the expenses, costs, and taxes.

Price-Taking Farmer

A farmer who has no control over the market price and must accept the prevailing market prices for their products.