Stocks a and B Have the Following Data A) These Two Stocks Should Have the Same Price

question 9

Multiple Choice

Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? $\begin{array}{lcc}&\underline{\mathrm{A}} & \underline{\mathrm{B}}\\\text { Required return } & 10 \% & 12 \% \\\text { Market price } & \$ 25 & \$ 40 \\\text { Expected growth } & 7 \% & 9 \%\end{array}$

• A) These two stocks should have the same price.
• B) These two stocks must have the same dividend yield.
• C) These two stocks should have the same expected return.
• D) These two stocks must have the same expected capital gains yield.
• E) These two stocks must have the same expected year-end dividend.

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Definitions:

Comparative Advantage

The ability of a country or firm to produce a good or service at a lower opportunity cost than its competitors.

Cooking

The process of preparing food for consumption by applying heat, combining ingredients, or both, following various methods and traditions.

Opportunity Cost

The worth of the best alternative option given up due to a decision made.

Production

The method of merging different material and immaterial inputs, such as plans and expertise, to produce something that can be consumed.