Stock X has the following data: Expexted dividend, d1= $3.00 Current Price= $50.

ID: 2708951 • Letter: S

Question

Stock X has the following data:

Expexted dividend, d1= $3.00

Current Price= $50.00

Expected constanbt growth rate= 6%

Assuming the stock market is efficient and the stock is in equilibrium, which of the following statements is CORRECT?

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

The stock’s expected dividend yield is 5%.

The stock’s expected capital gains yield is 5%.

The stock’s required return is 10%.

The stock’s expected price 10 years from now is $100.00.

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

The stock’s expected dividend yield is 5%.

The stock’s expected capital gains yield is 5%.

The stock’s required return is 10%.

The stock’s expected price 10 years from now is $100.00.

Stock price = D1÷(r-g)

D1 is next expected dividend

r is cost of common stock

g is growth rate

$50 = $3÷(r-6%)

Expected return, r = 12%

Dividend yield:

= $3÷$50

= 6%

Hence, correct option is (a)

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