Which of the Following Statements Is CORRECT, Assuming Stocks Are

question 76

Multiple Choice

Which of the following statements is CORRECT, assuming stocks are in equilibrium?

• A) Assume that the required return on a given stock is 13%.If the stock's dividend is growing at a constant rate of 5%, its expected dividend yield is 5% as well.
• B) A stock's dividend yield can never exceed its expected growth rate.
• C) A required condition for one to use the constant growth model is that the stock's expected growth rate exceeds its required rate of return.
• D) Other things held constant, the higher a company's beta coefficient, the lower its required rate of return.
• E) The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.

---

Definitions:

Diluted EPS

Earnings per share calculated under the assumption that all convertible securities and options have been converted into additional shares, potentially lowering the EPS.

Stock Options

Contracts that give the holder the right, but not the obligation, to buy or sell a stock at a specific price before a certain date.

High-Growth Companies

Entities that experience significantly higher rates of growth compared to the average growth rate of their industry.

IFRS

The International Financial Reporting Standards are globally accepted rules intended to bring consistency to accounting language, practices, and statements across all industries.