A stock's dividend is expected to grow at a constant rate of 5 percent a year. Which of the following statements is most correct?
A) The expected return on the stock is 5 percent a year.
B) The stock's dividend yield is 5 percent.
C) The stock's price one year from now is expected to be 5 percent higher.
D) Statements a and c are correct.
E) All of the statements above are correct.

Question

Quizplus · Accepted Answer

The stock's price one year from now is expected to be 5 percent higher because the dividend growth rate is 5 percent, which implies that the stock price will also grow at this rate if the dividend discount model holds.

A Stock's Dividend Is Expected to Grow at a Constant