7. Expected returns, dividends, and growth Aa Aa The constant dividend growth valuation model uses the value of a firm's dividends in the numerator of the equation. Dividends are divided by the difference between investors' required return and the dividend growth rate, as follows: D1 (rs - g) Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? O The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. O The capital gains yield on a stock that the investor already owns has a direct relationship with the firm's expected future stock price Consider the case of Walter Utilities: Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.45 at the end of the year. Its dividend is expected to grow at a constant rate of 6.50% per year. If Walter's stock currently trades for $19.00 per share, the average investor should expect to earn a return of walter's dividend is expected to grow at a constant growth rate of 6.50% per year, what do you expect to happen to Walter's expected dividend yield in the future? O It will stay the same. O It will decrease. O It will increase