Which of the Following Statements Is CORRECT, Assuming Stocks Are

question 37

Multiple Choice

Which of the following statements is CORRECT, assuming stocks are in equilibrium?

• A) assume that the required return on a given stock is 13%. if the stock's dividend is growing at a constant rate of 5%, its expected dividend yield is 5% as well.
• B) a stock's dividend yield can never exceed its expected growth rate.
• C) a required condition for one to use the constant growth model is that the stock's expected growth rate exceeds its required rate of return.
• D) other things held constant, the higher a company's beta coefficient, the lower its required rate of return.
• E) the dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.

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Definitions:

NPV

Net Present Value (NPV) is the calculation used to find the present value of cash flows at a specific discount rate, often used to assess the profitability of an investment.

Payback Period

The amount of time it takes for an investment to generate an amount of income or cash flows to recover the initial capital outlay.

Cash Flows

The net amount of cash and cash-equivalents being transferred into and out of a business, measuring financial health.

Initial Cost

The acquisition cost of an asset or investment, covering all expenses involved in making the asset operational, including purchase price, installation, and setup.