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

question 69

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

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Definitions:

Linear Equations

Equations of the first degree, meaning they involve only first-degree variables (like x) and their coefficients, forming a straight line when graphed.

Interest Rates

The percentage at which interest is paid by borrowers for the use of money that they borrow from a lender.

Investments

The act of allocating resources, usually money, with the expectation of generating an income or profit.

Order

The arrangement or sequence of objects or events, or a principle of arrangement; in mathematics, it often refers to the degree of a polynomial or differential equation.