A Stock Expects to Pay a Year-End Dividend of $2

Multiple Choice

A stock expects to pay a year-end dividend of $2.00 a share (i.e., D1 = $2.00; assume that last year's dividend has already been paid) . The dividend is expected to fall 5 percent a year, forever (i.e., g = -5%) . The company's expected and required rate of return is 15 percent. Which of the following statements is most correct?

A) The company's stock price is $10.
B) The company's expected dividend yield 5 years from now will be 20 percent.
C) The company's stock price 5 years from now is expected to be $7.74.
D) Both answers b and c are correct.
E) All of the above answers are correct.