A Stock Is Expected to Pay a Year-End Dividend of $2.00

question 67

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 = σ5%) . 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 dividend yield 5 years from now is expected to be 10%.
• B) the constant growth model cannot be used because the growth rate is negative.
• C) the company's expected capital gains yield is 5%.
• D) the company's expected stock price at the beginning of next year is $9.50.
• E) the company's current stock price is $20.

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