Which of the following statements is CORRECT?   a.  The constant growth model takes into consideration the capital gains investors expect to earn on a stock.   b.  Two firms with the same expected dividend and growth rate must also have the same stock price.   c.  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.   d.  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%.   e.  The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. provide an explanation for the choice.

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
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Which of the following statements is CORRECT?

 

a. 

The constant growth model takes into consideration the capital gains investors expect to earn on a stock.

 

b. 

Two firms with the same expected dividend and growth rate must also have the same stock price.

 

c. 

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.

 

d. 

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%.

 

e. 

The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.

provide an explanation for the choice.

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