Suppose the Dividend Yield Is Currently 5

question 18

Multiple Choice

Suppose the dividend yield is currently 5%. If annualized short term nominal interest rates are 6%,expected inflation is 1% per year,and the equity risk premium is 3%,then annual dividend growth is expected to be

• A) 1%
• B) 2%
• C) 3%
• D) 4%
• E) 5%

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Definitions:

Beta Coefficient

An index of a stock's fluctuation compared to the broader market, signifying its comparative risk.

Negative Beta

A measure indicating that an investment's returns are expected to move in the opposite direction of the overall market returns.

Treasury Bills

Short-term government securities with maturity periods typically less than one year, considered low-risk investments.

Long Bonds

Bonds with maturities typically longer than 10 years, often used to lock in interest rates.