Which of the following statements is most correct.
a. The stock valuation model, P0 = D1/(ks - g), can be used for firms which have negative growth rates.
b. If a stock has a required rate of return ks = 12 percent, and its dividend grows at a constant rate of 5 percent, this implies that the stock's dividend yield is 5 percent.
c. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
d. Statements a and c are correct.
e. All of the statements above are correct.
Statement a is true; the other statements are false. If a stock's required return is 12 percent and its capital gains yield is 5 percent, then its dividend yield is 12% - 5% = 7%. The expected future dividends should be discounted at the required rate of return.