A Stock Expects to Pay a Year-End Dividend of $2

question 72

Multiple Choice

A stock expects to pay a year-end dividend of $2.00 a share (i.e., D1 = $2.00; assume that last year's dividend has already been paid) . The dividend is expected to fall 5 percent a year, forever (i.e., g = -5%) . The company's expected and required rate of return is 15 percent. Which of the following statements is most correct?

• A) The company's stock price is $10.
• B) The company's expected dividend yield 5 years from now will be 20 percent.
• C) The company's stock price 5 years from now is expected to be $7.74.
• D) Both answers b and c are correct.
• E) All of the above answers are correct.

---

Definitions:

Global Warming

The ongoing rise in average global temperatures, mainly attributed to human activities such as burning fossil fuels, leading to climate change and associated environmental impacts.

Ramifications

Consequences or outcomes that result from an action or decision.

Coal Burning

The combustion of coal as a method to generate electricity or heat, contributing to air pollution, including the release of carbon dioxide and other harmful emissions.

Global Warming

The long-term rise in Earth’s average temperature, primarily due to carbon dioxide emissions from burning fossil fuels.