Stocks a and B Have the Following Data A) These Two Stocks Must Have the Same Dividend Yield

question 81

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? $$\begin{array} { l c c } & \mathrm { A } & \mathrm { B } \\\text { Required return } & 10 \% & 12 \% \\\text { Market price } & \$ 25 & \$ 40 \\\text { Expected growth } & 7 \% & 9 \%\end{array}$$

• A) These two stocks must have the same dividend yield.
• B) These two stocks should have the same expected return.
• C) These two stocks must have the same expected capital gains yield.
• D) These two stocks must have the same expected year-end dividend.
• E) These two stocks should have the same price.

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Definitions:

Mark-Up

The markup on goods’ cost intended to defray overhead expenditures and yield profit.

Operating Expenses

The costs associated with the day-to-day operations of a business.

Operating Profit

Earnings derived from a corporation's principal operations, before subtracting interest and taxes.

Cash Discount Rate

A reduction on the invoice price offered by sellers to encourage prompt payment from the buyer.