The Required Return on a Stock Is Equal to Which

question 23

Multiple Choice

The required return on a stock is equal to which one of the following if the dividend on the stock decreases by a constant percent per year?

• A) (P0/D1) - g
• B) (D1/P0)/g
• C) Dividend yield + Capital gains yield
• D) Dividend yield - Capital gains yield
• E) Dividend yield × Capital gains yield

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Definitions:

Straight-Line Method

A depreciation technique that allocates an equal amount of depreciation expense for an asset over its useful life.

Amortization

The process of spreading the cost of an intangible asset over its useful life or paying off a loan in regular installments over a period.

Interest Expense

The cost incurred by an entity for borrowed funds, including loans, bonds, or lines of credit.

Mortgage Note Payable

A long-term liability document that spells out the terms under which a borrower agrees to repay a sum of money to a lender, typically secured by real estate.