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Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? O The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. O The capital gains yield on a stock that the investor already owns has a direct relationship with the firm's expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.45 at the end of the year. Its dividend is expected to grow at a constant rate of 6.50% per year. If Walter's stock currently trades for $29.00 per share, what is the expected rate of return? O 14.95% O 1,104.83% O 657.93% O 713.36% Which of the following conditions must hold true for the constant growth valuation formula to be useful and give meaningful results? O The company's stock cannot be a zero growth stock. O The company's growth rate needs to change as the company matures. O The required rate of return, rs, must be greater than the long-run growth rate.

Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? O The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. O The capital gains yield on a stock that the investor already owns has a direct relationship with the firm's expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.45 at the end of the year. Its dividend is expected to grow at a constant rate of 6.50% per year. If Walter's stock currently trades for $29.00 per share, what is the expected rate of return? O 14.95% O 1,104.83% O 657.93% O 713.36% Which of the following conditions must hold true for the constant growth valuation formula to be useful and give meaningful results? O The company's stock cannot be a zero growth stock. O The company's growth rate needs to change as the company matures. O The required rate of return, rs, must be greater than the long-run growth rate.

Essentials Of Investments
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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The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows: Po D₁ (₁₁-8) Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? O The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. O The capital gains yield'on a stock that the investor already owns has a direct relationship with the firm's expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.45 at the end of the year. Its dividend is expected to grow at a constant rate of 6.50% per year. If Walter's stock currently trades for $29.00 per share, what is the expected rate of return? O 14.95% O 1,104.83% O 657.93% O 713.36%
Transcribed Image Text:The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows: Po D₁ (₁₁-8) Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? O The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. O The capital gains yield'on a stock that the investor already owns has a direct relationship with the firm's expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.45 at the end of the year. Its dividend is expected to grow at a constant rate of 6.50% per year. If Walter's stock currently trades for $29.00 per share, what is the expected rate of return? O 14.95% O 1,104.83% O 657.93% O 713.36%
Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? O The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. O The capital gains yield on a stock that the investor already owns has a direct relationship with the firm's expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.45 at the end of the year. Its dividend is expected to grow at a constant rate of 6.50% per year. If Walter's stock currently trades for $29.00 per share, what is the expected rate of return? O 14.95% O 1,104.83% O 657.93% O 713.36% Which of the following conditions must hold true for the constant growth valuation formula to be useful and give meaningful results? O The company's stock cannot be a zero growth stock. The company's growth rate needs to change as the company matures. O The required rate of return, rs, must be greater than the long-run growth rate.
Transcribed Image Text:Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? O The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. O The capital gains yield on a stock that the investor already owns has a direct relationship with the firm's expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.45 at the end of the year. Its dividend is expected to grow at a constant rate of 6.50% per year. If Walter's stock currently trades for $29.00 per share, what is the expected rate of return? O 14.95% O 1,104.83% O 657.93% O 713.36% Which of the following conditions must hold true for the constant growth valuation formula to be useful and give meaningful results? O The company's stock cannot be a zero growth stock. The company's growth rate needs to change as the company matures. O The required rate of return, rs, must be greater than the long-run growth rate.
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