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The constant growth valuation formula has dividends in the numerator. Dividends are divided by the...

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Finance

The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows:

P0P0 = = D1(rs g)D1(rs g)

Which of the following statements best describes how a change in a firms stock price would affect a stocks capital gains yield?

The capital gains yield on a stock that the investor already owns has an inverse relationship with the firms expected future stock price.

The capital gains yield on a stock that the investor already owns has a direct relationship with the firms expected future stock price.

Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $0.45 at the end of the year. Its dividend is expected to grow at a constant rate of 6.50% per year. If Walters stock currently trades for $27.00 per share, what is the expected rate of return?

426.67%

662.50%

8.17%

651.56%

Walters dividend is expected to grow at a constant growth rate of 6.50% per year. What do you expect to happen to Walters expected dividend yield in the future?

It will decrease.

It will increase.

It will stay the same.

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