If a stock's dividend is expected to grow at a constant rate of 5% a year, which of the followingstatements is correct?Select one:O a.O b.O c.The stock's dividend yield is 5%.The price of the stock is expected to decline in the future.The stock's required return must be equal to or less than 5%.Od. The stock's price one year from now is expected to be above the current price.e. The expected return on the stock is 5% a year.

Whenever there is a growth in dividend, it will automatically increase the value of stock in future.…

Answered: If a stock's dividend is expected to…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose that Do = $1.00 and the stock's last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of g = 5.00% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is rs = 9.00%. The dividend received in period 1 is D₁ = $1.00 × (1+0.0500) = $1.05 and the estimated intrinsic value in the same period is based on the constant growth model: P₁ = P² Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Price (Dollars) $26.25 PV of dividend at 9.00% (Dollars) Dividend Period (Dollars) 0 $1.00 1.05 1 2 3 4 5 The dividend yield for period 1 is The capital gain yield expected during period 1 is 4.00% O 5.00% and it will 9.00% If it is forecasted that the total return equals 9.00% for the next 5 years, what is the forecasted total return out…
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Suppose the risk-free rate of return is 4.5 percent and the market risk premium is 8 percent. Stock U, which has a beta coefficient equal to 1.3, is currently selling for $30 per share. The company is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $3.00 per share. Is Stock U correctly priced? Explain. Do not round intermediate calculations. Round your answers to one decimal place. The required rate of return, that is %, is the expected rate of return, that is %, which means that .
A stock is expected to pay a dividend of $1.50 at the end of the year (i.e., D1 = $1.50), and it should continue to grow at a constant rate of 3% a year. If its required return is 12%, what is the stock's expected price 4 years from today? Do not round intermediate calculations. Round your answer to the nearest cent. $
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A stock is expected to pay a dividend of $1.00 at the end of the year (i.e., D1 = $1.00), and it should continue to grow at a constant rate of 9% a year. If its required return is 14%, what is the stock's expected price 2 years from today? Do not round intermediate calculations. Round your answer to the nearest cent. $|

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