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.

---

Definitions:

Savings

The portion of income not spent on current expenditures and set aside for future use.

Investment

The action of dedicating resources such as capital, time, or effort to a particular venture with the expectation of achieving a beneficial return.

Productivity

A measure of the efficiency of production, often quantified as the ratio of outputs to inputs in the production process.

Adaptive Hypothesis

A theory suggesting that individuals adjust their expectations based on past experiences and gradually adapt to the reality of market conditions.