If a stock's dividend is expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.
A) the stock's dividend yield is 5%.
B) the price of the stock is expected to decline in the future.
C) the stock's required return must be equal to or less than 5%.
D) the stock's price one year from now is expected to be 5% above the current price.
E) the expected return on the stock is 5% a year.

Question

Quizplus · Accepted Answer

Statement d is true, because the stock price is expected to grow at the dividend growth rate.

If a Stock's Dividend Is Expected to Grow at a Constant