Stocks a and B Have the Following Data

question 39

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?

• 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. Problems Most of these problems are straightforward and only moderately difficult. However, a few of the later ones are relatively difficult and should be used primarily on take-home exams for students with some experience with Excel. Problems with * in the topic line are nonalgorithmic.

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Definitions:

Upscale Retailer

A retail store that sells high-end or luxury products to affluent customers.

Economic Influence

The impact of economic factors, such as inflation, unemployment, and economic policies, on consumer behavior and business operations.

Channel Captain

A leading entity within a distribution channel that exercises authority and power, often responsible for the coordination and direction of other channel members.

Distribution Channel

The pathway through which goods or services travel from the producer to the consumer, including intermediaries like wholesalers and retailers.