Stocks a and B Have the Following Data ?
A) Stock a Must Have a Higher Stock Price

question 55

Multiple Choice

Stocks A and B have the following data.The market risk premium is 6.0% and the risk-free rate is 6.4%.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT? $$\begin{array} { l r r } & \mathrm { A } & \mathrm { B } \\\text { Beta } & 1.10 & 0.90 \\\text { Constant growth rate } & 7.00 \% & 7.00 \%\end{array}$$
?

• 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's dividend yield equals its expected dividend growth rate.
• D) Stock B must have the higher required return.
• E) Stock B could have the higher expected return.

Distinguish between null and alternative hypotheses in statistical tests.

Utilize chi-square tests for goodness of fit, independence, and homogeneity in categorical data.

Compute expected frequencies in categorical data analysis.

Evaluate the significance of results from statistical tests using p-values.

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Definitions:

Present Value

Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return, important in assessing the value of investments.

Initial Investment

refers to the initial amount of money invested in a project or venture to get it started.

Profitability Index

A financial tool that calculates the relationship between the costs and benefits of a project, where a value above 1 indicates a profitable project.

Present Value

The current value of a future sum of money or stream of cash flows, given a specified rate of return.