Stock a Has a Required Return of 10% and a Price

question 9

Multiple Choice

Stock A has a required return of 10% and a price of $25,and its dividend is expected to grow at a constant rate of 7% per year.Stock B has a required return of 12% and a price of $40,and its dividend is expected to grow at a constant rate of 9% per year.Which of the following statements is correct?

• A)If the stock market were efficient, these two stocks would have the same price.
• B)The two stocks have the same dividend yield.
• C)If the stock market were efficient, these two stocks would have the same expected return.
• D)The two stocks have the same expected capital gains yield.

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Definitions:

Power Distance

A cultural dimension that reflects the extent to which less powerful members of organizations and institutions accept and expect that power is distributed unequally.

Social Distance

The level of acceptance and comfort between individuals within a community or society, often influencing social interactions.

Organizational Structure

The system of tasks, workflows, reporting relationships, and communication channels that define how activities are directed to achieve the goals of an organization.

Non-verbal Behavior

Communication without words, involving gestures, body language, and facial expressions, among other cues.