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

question 50

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:

Owners

Individuals or entities that hold legal title or possessory rights to assets or properties.

Exerting Effort

The action of applying physical or mental energy to achieve an objective.

Income

The money received, typically on a regular basis, by a person or household for work or through investments.

Fixed Wage Payments

Regular, consistent payments made to employees, not dependent on hours worked or performance levels.