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

question 52

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 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 expected capital gains yield is 5%.
• E)The company's expected stock price at the beginning of next year is $9.50.

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Definitions:

Rods

Photoreceptor cells in the retina that are sensitive to low light levels and are responsible for night vision.

Photoreceptor Cells

Specialized cells in the retina of the eye that respond to light, enabling vision.

Innermost Tunic

The deepest layer of an organ or structure, often referring to the inner layer of blood vessels that is in direct contact with the blood.

Pupil

The opening in the center of the iris of the eye, through which light enters the eye.