Stock X Has a Required Return of 12% and a Dividend

question 51

Multiple Choice

Stock X has a required return of 12% and a dividend yield of 5%,and its dividend is expected to grow at a constant rate forever.Stock Y has a required return of 10%,a dividend yield of 3%,and its dividend is expected to grow at a constant rate forever.Both stocks currently sell for $25 per share.Which of the following statements is correct?

• A)Stock Y pays a higher dividend per share than Stock X.
• B)Stock X pays a higher dividend per share than Stock Y.
• C)Stock Y has a lower expected growth rate than Stock X.
• D)Stock Y has the higher expected capital gains yield.

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Definitions:

Demand Curves

A graphical representation showing the relationship between the price of a good and the quantity demanded by consumers at various price levels.

Current Income

The total amount of money received by an individual or entity in a specified period from various sources, including wages, investments, and other earnings.

Higher Income

Earning more revenue or profit than the average or a predetermined benchmark.

Shotgun-Shell Ammunition

Ammunition specifically designed for use in a shotgun, consisting of a casing filled with shot or a slug.