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Finance inquiries

Which of the following statements is CORRECT?
A. The constant growth model takes into consideration the capital gains earned on a stock.
B. It is appropriate to use the constant growth model to estimate stock value even if the growth rate is never expected to become constant.
C. Two firms with the same expected dividend and growth rate must also have the same stock price.
D. If a stock has a required rate of return rs = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
E. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate

Solution Preview

Which of the following statements is CORRECT?

A. The constant growth model takes into consideration the capital gains earned on a stock.

Correct.

B. It is appropriate to use the constant growth model to estimate stock value even if the growth rate is never expected to become ...

Solution Summary

This solution is comprised of a detailed explanation to answer which of the following statements is CORRECT.

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