Stock X has the following data. Assuming the stock market is efficient and the stock is in equilibrium, which of the following statements is CORRECT?

$\begin{array}{lcc}

\text { Expected dividend, $ D_{1} $ }&3.00\$\
\text { Current Price, $ P_{0} $ } &50\$\
\text { Expected constant growth rate } & 6.0\%
\end{array}$
A) the stock's expected dividend yield and growth rate are equal.
B) the stock's expected dividend yield is 5%.
C) the stock's expected capital gains yield is 5%.
D) the stock's expected price 10 years from now is $100.00.
E) the stock's required return is 10%.

Question

Stock X has the following data. Assuming the stock market is efficient and the stock is in equilibrium, which of the following statements is CORRECT?

$\begin{array}{lcc}

\text { Expected dividend, $ D_{1} $ }&3.00\$\
\text { Current Price,  $ P_{0} $ } &50\$\ 
\text { Expected constant growth rate } & 6.0\% 
\end{array}$
A) the stock's expected dividend yield and growth rate are equal.
B) the stock's expected dividend yield is 5%.
C) the stock's expected capital gains yield is 5%.
D) the stock's expected price 10 years from now is $100.00.
E) the stock's required return is 10%.

Quizplus · Accepted Answer

The correct answer choice is a. One could quickly calculate the dividend yield and see that it equals the growth rate, but here are some numbers that provide more information.
 $\begin{array}{l}
\begin{array}{cc}
\mathrm{D}_{1} & \$ 3.00 &\mathrm{D}_{1} / \mathrm{P}_{0}& 6.0 \%\
\mathrm{P}_{0} & \$ 50.00 &\mathrm{r}_{\mathrm{X}}&12.0 \% \
\mathrm{g} & 6.0 \%
\end{array}\
\end{array}$

Stock X Has the Following Data A) the Stock's Expected Dividend Yield and Growth Rate Are