Two Constant Growth Stocks Are in Equilibrium,have the Same Price,and

Question 30

Multiple Choice

Two constant growth stocks are in equilibrium,have the same price,and have the same required rate of return.Which of the following statements is CORRECT? A) The two stocks must have the same dividend per share. B) If one stock has a higher dividend yield,then it must also have a lower dividend growth rate. C) If one stock has a higher dividend yield,then it must also have a higher dividend growth rate. D) The two stocks must have the same dividend growth rate. E) The two stocks must have the same dividend yield.

Related questions

Q 31

Which of the following statements is CORRECT,assuming stocks are in equilibrium? A) The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield. B) Assume that the required return on a given stock is 13%.If the stock's dividend is growing at a constant rate of 5%,then its expected dividend yield is 5% as well. C) A stock's dividend yield can never exceed its expected growth rate. D) A required condition for one to use the constant growth model is that the stock's expected growth rate exceed its required rate of return. E) Other things held constant,the higher a company's beta coefficient,the lower its required rate of return.

Q 32

A stock is expected to pay a year-end dividend of $2.00,i.e. ,D₁ = $2.00.The dividend is expected to decline at a rate of 5% a year forever (g = -5%).If the company is in equilibrium and its expected and required rate of return is 15%,then which of the following statements is CORRECT? A) The company's current stock price is $20. B) The company's dividend yield 5 years from now is expected to be 10%. C) The constant growth model cannot be used because the growth rate is negative. D) The company's expected capital gains yield is 5%. E) The company's expected stock price at the beginning of next year is $9.50.

Q 33

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 r_s = 12%,and if its dividend is expected to grow at a constant rate of 5%,then 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.