The Required Returns of Stocks X and Y Are R_X

question 10

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

---

Definitions:

BAT Model

A behavioral approach to understanding and modeling how consumers make purchasing decisions, considering factors such as beliefs, attitudes, and traditions.

Disbursements

Money paid out by a business or organization for various purposes, including operating expenses, investments, and dividends.

Fixed Cost

Costs that do not fluctuate with changes in production level or sales volume, such as rent or salaries.

Miller-Orr Model

A financial model used to manage cash flows and determine optimal cash reserves for a company.