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1. Which of the following statements is CORRECT?,,a. The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.,b. If a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock’s dividend yield is also 5%.,c. The stock valuation model, P0 = D1/(rs – g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate.,d. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.,e. The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.,,,,2. Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT?,,a. The two stocks must have the same dividend per share.,b. If one stock has a higher dividend yield, it must also have a lower dividend growth rate.,c. If one stock has a higher dividend yield, it must also have a higher dividend growth rate.,d. The two stocks must have the same dividend growth rate.,e. The two stocks must have the same dividend yield.,,

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