Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? O The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. O The capital gains yield on a stock that the investor already owns has a direct relationship with the firm's expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.45 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 $29.00 per share, what is the expected rate of return? O 14.95% O 1,104.83% O 657.93% O 713.36% Which of the following conditions must hold true for the constant growth valuation formula to be useful and give meaningful results? O The company's stock cannot be a zero growth stock. O The company's growth rate needs to change as the company matures. O The required rate of return, rs, must be greater than the long-run growth rate.
Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? O The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. O The capital gains yield on a stock that the investor already owns has a direct relationship with the firm's expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.45 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 $29.00 per share, what is the expected rate of return? O 14.95% O 1,104.83% O 657.93% O 713.36% Which of the following conditions must hold true for the constant growth valuation formula to be useful and give meaningful results? O The company's stock cannot be a zero growth stock. O The company's growth rate needs to change as the company matures. O The required rate of return, rs, must be greater than the long-run growth rate.
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 11P
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1
Transcribed Image Text: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:
Po
D₁
(₁₁-8)
Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield?
O The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price.
O The capital gains yield'on a stock that the investor already owns has a direct relationship with the firm's expected future stock price.
Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.45 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 $29.00 per share, what is the expected rate of return?
O 14.95%
O 1,104.83%
O 657.93%
O 713.36%
Transcribed Image Text:Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield?
O The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price.
O The capital gains yield on a stock that the investor already owns has a direct relationship with the firm's expected future stock price.
Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.45 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 $29.00 per share, what is the expected rate of return?
O 14.95%
O 1,104.83%
O 657.93%
O 713.36%
Which of the following conditions must hold true for the constant growth valuation formula to be useful and give meaningful results?
O The company's stock cannot be a zero growth stock.
The company's growth rate needs to change as the company matures.
O The required rate of return, rs, must be greater than the long-run growth rate.
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