Stocks a and B Have the Following Data

question 34

Multiple Choice

Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

• A) Stock A's expected dividend at t = 1 is only half that of Stock B.
• B) Stock A has a higher dividend yield than Stock B.
• C) Currently the two stocks have the same price, but over time Stock B's price will pass that of A.
• D) Since Stock A's growth rate is twice that of Stock B, Stock A's future dividends will always be twice as high as Stock B's.
• E) The two stocks should not sell at the same price. If their prices are equal, then a disequilibrium must exist.

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Definitions:

Memory Fade

The loss or weakening of memory over time, often due to the aging process or lack of mental stimulation.

Levels-Of-Processing Principle

A theory in cognitive psychology suggesting that the depth (shallow to deep) of mental processing affects memory recall, with deeper levels of processing leading to longer-lasting memory retention.

Retroactive Interference

The process by which new information impairs the retrieval of previously learned information.

Proactive Interference

A memory error that occurs when older information interferes with the recall of newer information.