A Stock Is Expected to Pay a Year-End Dividend of $2.00

question 35

Multiple Choice

A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?

• A) The company's current stock price is $20.
• B) The company's dividend yield 5 years from now is expected to be 10%.
• C) The constant growth model cannot be used because the growth rate is negative.
• D) The company's expected capital gains yield is 5%.
• E) The company's expected stock price at the beginning of next year is $9.50.

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Definitions:

Reliability and Validity

Refers to the consistency and accuracy of a measurement or assessment tool.

Company Sell

The process or act of transferring ownership of a company through sale to another party.

Multiple Hurdle Approach

A selection process where candidates must pass through several stages or "hurdles" of evaluation before being offered a position.

Owner-Operated Businesses

Enterprises that are controlled and run by their owners, who are also involved in the day-to-day operations and decision-making processes.