Which of the following statements is correct? a. if a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.b. the stock valuation model, p0 = d1/(rs − g), can be used to value firms whose dividends are expected to decline at a constant rate, i. e., to grow at a negative rate. c. the price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. d. the constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time. e. the constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.

B

Explanation:

Let analyse the answer option one by one:

A. False

Recalling the dividen discounted model (DDM):

Current stock price = Next year dividend/(Required rate of return - Dividend growth rate)

Transform the formula a bit we have:

Next year dividend/Current stock price = Required rate of return - Dividend growth rate or

Dividend yield = Required rate of return - Dividend growth rate = 12% - 5% = 7%.

B. True

C. False

Stock price is the present value of all expected future dividends, discounted at cost of equity.

D. False

The constant growth model can be used for a zero growth stock, where the dividend is expected to remain constant over time. In this case:

Current stock price = Dividend/Required rate of return

E. False

This model is suitable for mature firm with stable earning growth.

rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

hope this