Which of the Following Statements Is CORRECT

question 74

Multiple Choice

Which of the following statements is CORRECT?

• A) if a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
• B) the stock valuation model, p0 = d1/(rs σ g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate.
• C) the price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
• D) the constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.
• E) the constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.

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Definitions:

Principal

The original sum of money borrowed in a loan or invested, distinct from interest or profit generated from it.

Government

An organized group of individuals that has the authority to rule and govern a specific geographic area or country, establishing laws and policies.

Election Process

The sequence of activities involving the submission of candidate names, campaigning, voting, and ultimately determining a winner in a democratic system.

Incentives

Rewards or penalties that motivate individuals or entities to behave in certain ways.