Which of the following statements is CORRECT, assuming stocks are in equilibrium?
A) Assume that the required return on a given stock is 13%.If the stock's dividend is growing at a constant rate of 5%, its expected dividend yield is 5% as well.
B) A stock's dividend yield can never exceed its expected growth rate.
C) A required condition for one to use the constant growth model is that the stock's expected growth rate exceeds its required rate of return.
D) Other things held constant, the higher a company's beta coefficient, the lower its required rate of return.
E) The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.

Question

Quizplus · Accepted Answer

The dividend yield on a constant growth stock is indeed equal to its expected total return minus its expected capital gains yield. This is because the total return on a stock is composed of the dividend yield plus the capital gains yield.

Which of the Following Statements Is CORRECT, Assuming Stocks Are