Stock Price
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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's 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 stock price next year is expected to be $9.50.
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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's 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 ...
Purchase this Solution
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