1. The rate at which a stock's price is expected to appreciate (or depreciate) is called the yield. A. current B. total C. dividend D. capital gains 2. The underlying assumption of the dividend growth model is that a stock is worth: A. the present value of the future income that the stock generates. B. the same amount to every investor regardless of his desired rate of return. C. an amount computed as the next annual dividend divided by the market rate of return. D. an amount computed as the next annual dividend divided by the required rate of return. 3. The total rate of return earned on a stock is composed of which two of the following? 1. current yield II. yield to maturity III. dividend yield IV. capital gains yield
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
![1. The rate at which a stock's price is expected to appreciate (or depreciate) is called the
yield.
A. current
B. total
C. dividend
D. capital gains
2. The underlying assumption of the dividend growth model is that a stock is worth:
A. the present value of the future income that the stock generates.
B. the same amount to every investor regardless of his desired rate of return.
C. an amount computed as the next annual dividend divided by the market rate of retum.
D. an amount computed as the next annual dividend divided by the required rate of return.
3. The total rate of return earned on a stock is composed of which two of the following?
1. current yield
II. yield to maturity
III. dividend yield
IV. capital gains yield
A. I and II only
B. I and IV only
C. II and III only
D. III and IV only
4. Which one of the following correctly defines the constant dividend growth model?
A. R = (D₁ Po) + g
B. Po = (D₁R) + g
C. R=(Po Do) + g
D. Po = Do ] (R-g)
5. How much are you willing to pay for one share of stock if the company just paid an $.80
annual dividend, the dividends increase by 4% annually and you require an 8% rate of
return?
A. $19.23
B. $20.00
C. $20.40
D. $20.80](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fed9eb176-8607-47b7-a6a4-b863d8c3e282%2F616dddad-a464-473d-958b-2ee4dad9c117%2F69u14ue_processed.jpeg&w=3840&q=75)
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