The Required Returns of Stocks X and Y Are R_X

question 16

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 Stock Y and Stock X have the same dividend yield, then Stock Y must have a lower expected capital gains yield than Stock X.
• B) 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.
• C) The stocks must sell for the same price.
• D) Stock Y must have a higher dividend yield than Stock X.
• E) 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.

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Definitions:

Product Cost

The total expense incurred to produce and prepare a product for sale, including direct materials, labor, and overhead.

Unit Costs

The cost incurred by a company to produce, store, and sell one unit of a particular product or service.

Absorption Costing

A cost accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - in the cost of a product.

Variable Costing

An accounting method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs, excluding fixed overhead.