A stock is expected to pay a year-end dividend of $2.00, i.e., D = $2.00. The di

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A stock is expected to pay a year-end dividend of $2.00, i.e., D = $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? (Points : 10)
The company’s current stock price is $20.
The company’s dividend yield 5 years from now is expected to be 10%.
The constant growth model cannot be used because the growth rate is negative.
The company’s expected capital gains yield is 5%.
The company’s expected stock price at the beginning of next year is $9.50.

Explanation / Answer

The constant growth model cannot be used because the growth rate is negative.

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A stock is expected to pay a year-end dividend of $2.00, i.e., D 1 = $2.00. The

A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The d

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A stock is expected to pay a year-end dividend of $2.00, i.e., D = $2.00. The di

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