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Question

A stock is expected to pay a year-end dividend of $2.00 a share (D1 = $2.00). The dividend is expected to at a rate of fall 5% a year forever (g = -5%). The company's expected and required rate of return is 15%. Which of the following statements is CORRECT?

The company's dividend yield 5 years from now is expected to be 10%.

The company's stock price next year is expected to be $9.50.

The constant growth model cannot be used because the growth rate is negative.

The company's expected capital gains yield is 5%.

The company's current stock price is $20.

Answer 1

Current stock price is 20 dollars.