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- 13... What conditions are necessary for the Constant Dividend Growth Model to be used? Select all that apply. a.The required rate of return must be greater than the dividend growth rate. b.The dividend must be at least $3. c.The company must pay taxes. d.The company's dividend growth rate must be expected to remain constant.13 The value of the stock: Group of answer choices Increases as the required rate of return increases Increases as the dividend growth rate increases and increases as the required rate of return decreases Increases as the dividend growth rate increases Increases as the required rate of return decreasesThe dividend growth model I. assumes that dividends increase at a constant rate forever. II. can be used to compute a stock price at any point in time. III. can be used to value zero-growth stocks. IV. requires the growth rate to be less than the required return.
- [7] True or False (Provide explanation). Given the gordon growth model, the expected percentage growth in value of a stock is equal to the capital gains yield for that stock.6. Expected returns, dividends, and growth The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows: Pˆ0P̂0 = = D1(rs – g)D1(rs – g) Which of the following statements is true? Increasing dividends will always increase the stock price. Increasing dividends will always decrease the stock price, because the firm is depleting internal funding resources. Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.05 at the end of the year. Its dividend is expected to grow at a constant rate of 6.50% per year. If Walter’s stock currently trades for $28.00 per share, what is the expected rate of return? 704.91% 656.87% 13.82% 992.14%…The g in the dividend growth model is equal to Question 14 options: A) neither the annual growth rate for dividends and the annual growth rate for the stock price. B) both the annual growth rate for dividends and the annual growth rate for the stock price. C) the annual growth rate for stock price. D) the annual growth rate for dividends.
- A company has just paid a dividend of 3.68$. Its discount rate is 11.2%, and the expected perpetual growth rate is 4.2%. What is the stock's Capital Gain Yield?3. a. Suppose a stock pays currently pays a $10 dividend each year and that the dividend is expected to grow at 3% each year. Suppose that the risk-adjusted discount rate for that stock is 8%. According to fundamental analysis stock prices are the present value of expected future dividends (discounted at the risk-adjusted discount rate). What should the current price of this stock be? Hint: a=(1+g)/(1+i) where g is the growth rate in dividends and i is the discount rate for stocks. Use the formula in 2. but let ?? → ∞. b. For the stock in part a, what is the expected rate of return for that stock. c. Suppose that market participants think the stock has become riskier and raise the discount rate for the stock to 10%. What is the new stock price value? What is the expected rate of return for this stock?7.In the formula r = (D1/P0) + g, what does (D1/P0) represent?a. the expected price appreciation yield from a common stock.b. the expected dividend yield from a common stock.c. the dividend yield from a preferred stock.d. the interest payment from a bond.e. None of the above.8. According to the constant growth in dividends price formula given in the textbook, if the dividend to be paidone year from today increases and all other factors remain constant, the price of the stock will __________;if the growth rate of all future dividends increases and all other factors remain constant, the price of the stockwill __________; and if the required rate of return increases and all other factors remain constant, the priceof the stock will __________.a. decrease; decrease; decreaseb. increase; increase; decreasec. decrease; increase; decreased. increase; increase; increasee. None of the answers listed above are correct.9. Which of the following is correct about the equilibrium price of a $1,000…
- D3) An analyst gathers the following data: · Expected rate of return on the market = 14% · Current Dividend = $2 · Growth rate in dividends = 6% per year · Risk Free Rate = 8% · Expected rate of return on stock X if you buy at current price = 16% · Stock X’s beta = 1.25 Using this data, is this stock underpriced or overpriced and by how much (in % return).(b) Assume that Stock X is fairly priced today. Stock X just distributed a per share dividend of$1. It is expected that the company will increase its dividend by 20% in the coming year, 15%in the second year, 10% in the third year, and 5% in the fourth year. Starting from the fifthyear, the company will maintain the dividend growth rate to be 5% per year forever. Howmuch is Stock X worth today if its equity cost of capital is 10%?35. Dividend growth rate for a stable firm can be estimated as Group of answer choices Plow back rate * the return on equity (ROE) Plow back rate / the return on equity (ROE) Plow back rate +the return on equity (ROE) Plow back rate - the return on equity (ROE)
