Stocks a and B Have the Following Data A) the Two Stocks Could Not Be in Equilibrium with Market

question 3

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

• A) The two stocks could not be in equilibrium with the numbers given in the question.
• B) A's expected dividend is $0.50.
• C) B's expected dividend is $0.75.
• D) A's expected dividend is $0.75 and B's expected dividend is $1.20.
• E) The two stocks should have the same expected dividend.

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Definitions:

Variance

Variance is a statistical measure that represents the dispersion or spread of a dataset by calculating the average of the squared differences from the mean, indicating how much the data points in a set differ from the mean value.

Exponential Distribution

A probability distribution that describes the time between events in a process where occurrences happen at a constant rate.

Proportion

A portion, segment, or fraction when evaluated in relation to its entirety.

Chi-squared Curve

Describes the distribution of a chi-squared statistic, used in hypothesis testing to determine how well observed data fit with expected data.