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 rs = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that 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.

## mathquestions12

18 Aug 2012 05:12:23 GMTCorrect answer is (a)The constant growth model takes into consideration the capital gains investors expect to earn on a stock.