Which of the following statements is CORRECT, assuming stocks are in equilibrium

Question

Which of the following statements is CORRECT, assuming stocks are in equilibrium?
a. Assume that the required return on a given stock is 13%. If the stock's dividend is growing at a constant rate of 5%, its expected dividend yield is 5% as well.

b. Other things held constant, the higher a company's beta coefficient, the lower its required rate of return.

c. A required condition for one to use the constant growth model is that the stock's expected growth rate exceeds its required rate of return.

d. The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.

e. A stock's dividend yield can never exceed its expected growth rate.

Explanation / Answer

d. The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.

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