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Question(s) / Instruction(s):

Which of the following statements is CORRECT, assuming stocks are in equilibrium?

 

A.  The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.

B.  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.

C.  A stock’s dividend yield can never exceed its expected growth rate.

D.  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.

E.   Other things held constant, the higher a company’s beta coefficient, the lower its required rate of return.

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