Stocks X and Y Have the Following Data A) Stock X Pays a Higher Dividend Per Share Than

question 6

Multiple Choice

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? $$\begin{array} { l c c } & \mathrm { X } & \mathrm { Y } \\\text { Price } & \$ 25 & \$ 25 \\\text { Expected dividend yield } & 5 \% & 3 \% \\\text { Required return } & 12 \% & 10 \%\end{array}$$

• A) Stock X pays a higher dividend per share than Stock Y.
• B) One year from now, Stock X should have the higher price.
• C) Stock Y has a lower expected growth rate than Stock X.
• D) Stock Y has the higher expected capital gains yield.
• E) Stock Y pays a higher dividend per share than Stock X.

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Definitions:

Tax Rate

The rate at which taxes are levied on an individual or a company.

Cost of Capital

The yield a corporation needs to generate from its investment ventures to sustain its market price and appeal to investors.

Rate of Return

The gain or loss on an investment over a specified period, expressed as a percentage.

Short-term Borrowings

Loans or financial obligations that are due for repayment within a short period, typically less than a year.