A Stock Is Expected to Pay a Year-End Dividend of $2.00,i.e.,D₁

question 52

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

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Definitions:

BCG Matrix

A strategic business tool that classifies business units or products into four categories (Question Marks, Stars, Cash Cows, Dogs) based on market growth and market share.

Dogs

Domesticated carnivorous mammals that typically have a long snout, an acute sense of smell, non-retractable claws, and a barking, howling, or whining voice.

Market Share

The portion of a market controlled by a particular company or product, often represented as a percentage of total sales in that market.

SWOT Analysis

A strategic planning tool used to identify and assess an organization's Strengths, Weaknesses, Opportunities, and Threats in relation to competition and market dynamics.