If a Stock's Dividend Is Expected to Grow at a Constant

question 47

Multiple Choice

If a stock's dividend is expected to grow at a constant rate of 5% a year,which of the following statements is CORRECT? The stock is in equilibrium.

• A)The expected return on the stock is 5% a year.
• B)The stock's dividend yield is 5%.
• C)The price of the stock is expected to decline in the future.
• D)The stock's required return must be equal to or less than 5%.
• E)The stock's price one year from now is expected to be 5% above the current price.

---

Definitions:

Monetarists

Economists who theorize that alterations in the money supply have a major influence on the national output in the short run and affect price levels over more prolonged periods.

Rational Expectationists

Economists who argue that individuals make decisions based on their rational outlook, available information, and past experiences.

International Capital Flows

The movement of money for the purpose of investment, trade, or business production across international borders.

Central Bank

A bank whose chief function is the control of the nation’s money supply.