Which of the Following Statements Is CORRECT

question 14

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.

---

Definitions:

Adrenaline

A hormone secreted by the adrenal glands, increasing heart rate and energy in response to stress or excitement.

Cortisol

A steroid hormone produced by the adrenal glands, often increased in response to stress or low blood-glucose concentration.

Adrenal Glands

Small glands located on top of each kidney that produce hormones such as adrenaline and cortisol, which help control heart rate, blood pressure, and other body functions.

Anger-Linked

Associated with or influenced by the emotion of anger.