A stock is expected to pay a year-end dividend of $2.00 a share (D1 = $2.00). The dividend is expected to decline at a constant rate of 5% per year (g = -5%). The company’s expected and required rate of return is 15%. Which of the following statements is CORRECT?
A. The company’s current stock price is $20
B. The company’s dividend yield 5 years from now is expected to be 10%.
C. The company’s expected capital gains yield is 5%.
D. The company’s stock price next year is expected to be $9.50
E. The constant growth model cannot be used because the growth rate is negative.