Question: A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of five percent a year forever [g = -5%]. If the company is in equilibrium & its expected & required rate of return is fifteen percent, Find the correct statement.
[A] The constant growth model cannot be used because the growth rate is negative.
[B] The company’s expected capital gains yield is 5 percent.
[C] The company’s expected stock price at the beginning of next year is 9.50 dollar.
[D] The company’s current stock price is 20 dollar.
[E] The company’s dividend yield 5 years from now is expected to be 10 percent.