The Required Returns of Stocks X and Y Are R_X

question 16

Multiple Choice

The required returns of Stocks X and Y are r_X = 10% and r_Y = 12%.Which of the following statements is CORRECT?

• A) If Stock Y and Stock X have the same dividend yield, then Stock Y must have a lower expected capital gains yield than Stock X.
• B) If Stock X and Stock Y have the same current dividend and the same expected dividend growth rate, then Stock Y must sell for a higher price.
• C) The stocks must sell for the same price.
• D) Stock Y must have a higher dividend yield than Stock X.
• E) If the market is in equilibrium, and if Stock Y has the lower expected dividend yield, then it must have the higher expected growth rate.

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Definitions:

Level II

A term that can refer to various stages of progress, proficiency, or achievement in different contexts, requiring further specificity to define accurately.

Authority

The power or right to command, create, change, or otherwise act. The successful leader uses both formal and informal authority to accomplish goals.

Secular Ethics

A moral philosophy that bases ethical considerations on principles and values not derived from religious beliefs, focusing on human reasoning and society's well-being.

Level III

Typically refers to a moderate or intermediate stage or level in a hierarchical scale of values, complexity, or importance.