Stock a Has a Beta of 1

question 12

Multiple Choice

Stock A has a beta of 1.1 and Stock B's beta is 0.9.The market risk premium is 6%,and the risk-free rate is 6.3%.Both stocks have a constant dividend growth rate of 7%.If the market is in equilibrium,which of the following statements is correct?

• A)Stock A must have a higher stock price than Stock B.
• B)Stock A must have a higher dividend yield than Stock B.
• C)Stock B must have the higher required return.
• D)Stock B could have the higher expected return.

---

Definitions:

MPAA

The Motion Picture Association of America, an organization that represents the interests of major Hollywood studios and provides movie ratings.

Union-guild Movement

The collective organization of workers in various trades and professions, including those in the entertainment industry, aimed at negotiating for better working conditions, wages, and rights.

Supreme Court Order

A directive issued by the highest court in a country, which must be followed by lower courts and individuals.

Femme Fatale

A character archetype, often in film noir, of a mysterious and seductive woman whose charms ensnare her lovers, often leading them into compromising, dangerous situations.