Stock is expected to pay a year-end dividend

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Reference no: EM13908952

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 expected capital gains yield is 5%.

b. The company’s current stock price is $20.

c. The company’s dividend yield 5 years from now is expected to be 10%.

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

e. The company’s expected stock price at the beginning of next year is $9.50.

Reference no: EM13908952

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