Stock X represents a local company that you are analyzing and has the following

ID: 2632304 • Letter: S

Question

Stock X represents a local company that you are analyzing and has the following data. Assume the stock market is efficient and the stock is in equilibrium, which of the following statements is correct?

Expected Dividend, D1 = $3.00

Current Price, P0 - $50

Expected constant growth rate = 6%

a. The stock's required return is 10%

b. The stock's expected dividend yield and growth rate are equal

c. The stock's expected dividend yield is 5%

d. The stock's expected capital gains yield is 5%

e. The stock's expected price 10 years from now is $100

Explanation / Answer

THE STOCKS DIVIDEND YIELD AND GROWTH RATE BOTH ARE EQUAL.

G=6%

YIELD = 3/50 = .06 OR 6%.

G= YIELD.

RETURN REQUIRED = 12%.

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Stock X represents a local company that you are analyzing and has the following

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Explanation / Answer

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