29 Which one of the following statements is correct?AThe dividend growth model can be used to compute the current value of any stock.B.Preferred stocks have constant growth dividendsC.A constant dividend stock cannot be valued using the dividend growth model.D.The capital gains yield is the annual rate of change in a stock's priceO ADOBOU

In finance we often use the dividend growth model to value stocks. The model is based on the premise…

Which one of the following statements is correct? The dividend growth model can be used to compute the current value of any stock. Preferred stocks have constant growth dividends A constant dividend stock cannot be valued using the dividend growth model. The capital gains yield is the annual rate of change in a stock's price

Which one of the following statements is correct? The dividend growth model can be used to compute the current value of any stock. Preferred stocks have constant growth dividends A constant dividend stock cannot be valued using the dividend growth model. The capital gains yield is the annual rate of change in a stock's price

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 16P

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Is the following equation correct for finding the value of a constant growth stock? Explain. P0=Dors+g
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.
23. Suppose a stock is not currently paying dividends, and its management has announced that it will not pay a dividend for several years, but that it does expect to start paying dividends sometime in the future. Under these conditions, which of the following statements is most correct? a. The value of the stock can be found using DCF procedures by finding the present value of expected future dividends accounting for their timing and amount. b.Since it is expected to someday pay dividends, the value of the stock today can be found with this equation: P0 = D1/(r - g). c. Under these conditions, we can estimate a value for the stock, but we cannot use any form of the constant growth DCF model to do so. d. Such a stock should have a value of zero until it actually begins paying dividends.
Using the constant dividend growth model for valuing common stock, if R goes down, Question 24 options: A) P0 will go up. B) P0 will go down.
1. (a) What are the two components of most stocks’ expected total return?(b) How does one calculate the capital gains yield and the dividend yield of a stock?(c) If D1 = RM3.00, P0 = RM50, and the expected P at t=1 is equal to RM52, what are the stock’s expected dividend yield, capital gains yield, and total return for the coming year?2. (a) Are stock prices affected more by long-term or short-term performance? Explain.(b) A stock is expected to pay a dividend of RM2 at the end of the year. The required rate of return is rs = 12%. What would the stock’s price be if the growth rate were 4%?What would the stock’s price be if the growth rate were 0%?3. If D0 = RM4.00, rs = 9%, and g = 5% for a constant growth stock, what are the stock’s expected dividend yield and capital gains yield for the coming year?4. (a) Explain what is meant by the terms “horizon (terminal) date” and “horizon (terminal) value”.(b)Suppose D0 = RM5.00 and rs = 10%. The expected growth rate from Year 0 to Year 1 (g0…
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…
The dividend yield (i.e. D1/P0) is a good measure of the expected return on a common stock under which of the following circumstances? g = 0 g > 0 g < 0 g is expected to remain constant over time under no circumstances