A Stock Is Expected to Pay a Year-End Dividend of $2.00,i.e.,D₁

question 31

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's 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 stock price next year is expected to be $9.50.

---

Definitions:

Current State

The present condition or situation of a system, process, or subject of study.

Technology

The use of scientific understanding for functional aims, particularly within the industrial sector.

Motorcycles

Two-wheeled vehicles powered by an engine, designed for individual or small number passenger transport.

Opportunity Cost

The value of the next best alternative foregone as the result of making a decision.