A Stock Is Expected to Pay a Year-End Dividend of $2.00,i.e

question 43

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 (g = -5%) .If the company is in equilibrium and its expected and required rate of return is 15%,then 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:

Multiply

An arithmetic operation that combines two numbers to get a product.

Right Angles

Angles that exactly equal 90 degrees, forming a perfect L shape.

Multiply

The process of finding the product when two or more numbers are taken together.

Right Angles

Angles that measure exactly 90 degrees.