If Two Firms Have the Same Current Dividend and the Same

question 63

True/False

If two firms have the same current dividend and the same expected growth rate, their stocks must sell at the same current price or else the market will not be in equilibrium.

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market, used in the capital asset pricing model to determine expected return.

Marginal Investor

An investor whose actions and decisions regarding buying or selling a security are believed to represent the overall market sentiment.

Risk Averse

Risk averse describes an individual or entity that prefers to minimize risk, opting for lower returns with known risks rather than higher returns with unknown risks.

High-Beta Stock

Stocks that have a higher volatility compared to the market, often experiencing larger fluctuations in price than the overall market.