1. Which of the following statements is CORRECT?
A. The stock valuation model, P0 = D1/(rs - g), cannot be used for firms with zero dividends growth.
B. All of the statements above are incorrect.
C. The stock valuation model, P0 = D1/(rs - g), cannot be used for firms that have negative growth rates.
D. The stock valuation model, P0 = D1/(rs - g), can be used for firms whose growth rates exceed their required return
E. The dividend yield on a constant growth stock equals its expected total return less its expected capital gains yield.
2. A stock just paid a dividend of $1. The required rate of return is rs = 11%, and the constant growth rate is 5%. What is the stock price three years from now?
A. $22.79 B. $15.61 C. $17.85 D. $25.00 E. $20.26