If a stock’s dividend is expected to grow at a constant rate of 5% a year, which

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Question

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 expected return on the stock is 10% a year.

B. The stock’s dividend yield is 5%.

C. The price of the stock is expected to decline in the future.

D. The stock’s required return must be equal to or less than 5%.

E. The stock’s price one year from now is expected to be below the current price.

A. The expected return on the stock is 10% a year.

B. The stock’s dividend yield is 5%.

C. The price of the stock is expected to decline in the future.

D. The stock’s required return must be equal to or less than 5%.

E. The stock’s price one year from now is expected to be below the current price.

Explanation / Answer

None of the options are correct as the stock price will rise.

Dividend yield is computed on basis of price and required return is also computed basis data. In the above case there is no data so how could we arrive at dividend yield and required return

The stock’s price one year from now is expected to be 5% above the current price.

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If a stock’s dividend is expected to grow at a constant rate of 5% a year, which

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