Which one of the following statements is correct?
A)The capital gains yield is the annual rate of change in a stock's price.
B)Preferred stocks have constant growth dividends.
C)A constant dividend stock cannot be valued using the dividend growth model.
D)The dividend growth model can be used to compute the current value of any stock.
E)An increase in the required return will decrease the capital gains yield.

Question

Quizplus · Accepted Answer

The capital gains yield is the annual rate of change in a stock's price. It is calculated as the change in the stock price divided by the original price. The other statements are not correct. Preferred stocks may or may not have constant growth dividends, a constant dividend stock can be valued using the dividend growth model, and the dividend growth model can only be used to compute the current value of stocks that pay constant dividends. An increase in the required return will decrease the stock's price (and increase its yield), which may or may not affect the capital gains yield.

Which One of the Following Statements Is Correct