A stock is expected to pay a year-end dividend of $2.00, i., D 1 = $2. The dividend is expected to decline at a rate of 5% a year forever (g = 5%).

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 5% a year forever (g = −5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT? The company’s dividend yield 5 years from now is expected to be 10%.

The constant growth model cannot be used because the growth rate is negative.

The company’s expected capital gains yield is 5%.

The company’s expected stock price at the beginning of next year is $9.50.

The company’s current stock price is $20.