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

question 77

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 dividend yield 5 years from now is expected to be 10%.
• B) The constant growth model cannot be used because the growth rate is negative.
• C) The company's expected capital gains yield is 5%.
• D) The company's expected stock price at the beginning of next year is $9.50.
• E) The company's current stock price is $20.

---

Definitions:

Norming Stage

A phase in team development where members establish standards and norms, enhancing unity and cooperation.

Cliques

Small, exclusive groups of people who share common interests or views, often excluding others.

Noticeable

Easily seen, recognized, or observed; attracting attention.

Five Stages

Refers to a conceptual framework outlining the successive phases an individual, group, or project undergoes to achieve development or change.