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?

A)The stock's required return is 10%.
B)The stock's expected dividend yield and growth rate are equal.
C)The stock's expected dividend yield is 5%.
D)The stock's expected capital gains yield is 5%.
E)The stock's expected price 10 years from now is $100.00.

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? ​

A)The stock's required return is 10%. 
B)The stock's expected dividend yield and growth rate are equal. 
C)The stock's expected dividend yield is 5%. 
D)The stock's expected capital gains yield is 5%. 
E)The stock's expected price 10 years from now is $100.00.

Quizplus · Accepted Answer

From the data given, we know that the current price per share (P0) is $100, the next expected dividend (D1) is $5, and the required rate of return (r) is 10%.

Using the dividend discount model, we can calculate the expected growth rate (g) as:
P0 = D1 / (r - g)
$100 = $5 / (0.1 - g)
g = 5%

Therefore, the stock's expected dividend yield and growth rate are equal, and choice B is correct. None of the other statements are necessarily true based on the given data.

Stock X Has the Following Data