2.) Now consider Entergy Corp.’s common stock. Value Line estimates Entergy Corp.’s 5- year dividend growth rate to be 6.0 percent. Assume that Entergy Corp.’s stock traded on January 1, 2003 for $22.26. Assume for now that the 6.0 percent growth rate is expected to continue indefinitely.
a.) What was Entergy Corp.’s expected rate of return at the beginning of 2003? Value Line estimate Entergy Corp.’s dividends to be $1.80 at the start of 2003.
b.) What was the expected dividend yield and expected capital gains yield on January 1,
2003? Describe the relationship between dividend yield and capital gains yield over time under constant growth assumptions.
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