Stock a Has a Required Return of 10% and a Price

question 9

Multiple Choice

Stock A has a required return of 10% and a price of $25,and its dividend is expected to grow at a constant rate of 7% per year.Stock B has a required return of 12% and a price of $40,and its dividend is expected to grow at a constant rate of 9% per year.Which of the following statements is correct?

• A)If the stock market were efficient, these two stocks would have the same price.
• B)The two stocks have the same dividend yield.
• C)If the stock market were efficient, these two stocks would have the same expected return.
• D)The two stocks have the same expected capital gains yield.

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Definitions:

Henry

The unit of inductance in the International System of Units (SI), symbolized as H.

Parallel

A circuit configuration where components are connected across common points or junctions, allowing current to divide and flow through multiple paths.

Series

Components in an electrical circuit are said to be in series if they are connected along a single path, so the same current flows through all of the components.

Inductive Reactance

The opposition to alternating current flow due to the inductance of a component or circuit, measured in ohms.