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

question 34

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:

Unit Fixed Cost

The fixed cost associated with producing one unit of a product, which does not vary with the level of production output.

Total Fixed Cost

The sum of all expenses that remain constant regardless of the level of production or sales activities, such as rent, salaries, and insurance premiums.

Driver's Side Air Bag

A safety feature located in the steering wheel designed to protect the driver in the event of a collision.

Automobile Manufacturer

A company that produces and sells cars, trucks, and other vehicles, often focusing on both the design and assembly of automobile parts and complete vehicles.