If a stock's dividend is expected to grow at a constant rate of 5% a year, then which of the following statements is CORRECT? The stock is in equilibrium.
A. The expected return on the stock is 5% a year.
B. The stock's dividend yield is 5%.
C. The price of the stock is expected to decline in the future.
D. The stock's required return must be equal to or less than 5%.
E. The stock's price one year from now is expected to be 5% above the current price.
Answer: E
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