Which of the Following Statements Is CORRECT

question 86

Multiple Choice

Which of the following statements is CORRECT?

• A) If a stock has a required rate of return r_s = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
• B) The stock valuation model, P₀ = D₁/(r_s − g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate.
• C) The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
• D) The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.
• E) The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.

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Definitions:

Central Nervous System

The principal part of the nervous system comprising the brain and spinal cord, responsible for processing information and controlling responses.

Sympathetic

Pertaining to the part of the autonomic nervous system that is responsible for preparing the body for action, especially in situations threatening survival.

Parasympathetic

Part of the autonomic nervous system responsible for conserving energy and calming the body after periods of stress or danger.

Central

Referring to the importance or essential nature of something; often used to describe things that are at the core or in the middle of a structure or concept.