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

question 4

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%, 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:

Intrinsic Motivation

The drive to engage in an activity for its own sake, due to the internal satisfaction and pleasure it brings, rather than for some separable outcome or reward.

Extrinsic Motivation

Motivation driven by external rewards such as money, fame, grades, and praise, as opposed to intrinsic motivation, which is driven by internal desires.

Amygdala

A part of the brain involved in experiencing emotions, particularly fear and pleasure.

Emotional Information

Data or cues that relate to the feelings, emotions, or affective states of an individual or group.