Question

Which of the following statements is CORRECT?a. Two firms with the same expected dividend and growth rates must also have the same stock price.b. It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant.c. 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%.d. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.e. The constant growth model takes into consideration the capital gains investors expect to earn on a stock.

Answer 1

b) correct. the company can use the multistage dividend model for different growth rates

Step-by-step explanation:

a) false. as the required return for each company can difer.

c) false

dividend yield:

`(Dividend)/(Price)`

while the dividend grow simpel states that dividends of the next year will growth at a given rate

d) false. it is discounted at required return less growth rate

e) false it only consider dividend as consider the capital gains mere speculations as no-one can affirm a subsequent sale will occur at a higher price. If we assume rational behavior investor will purchase higher because they expected higher dividends