Stocks a and B Have the Same Required Return and the Same

question 47

Multiple Choice

Stocks A and B have the same required return and the same price,$25.Stock A's dividend is expected to grow at a constant rate of 10% per year,while Stock B's dividend is expected to grow at a constant rate of 5% per year.Which of the following statements is correct?

• A)Stock A's expected dividend at t = 1 is only half that of Stock B.
• B)Stock A has a higher dividend yield than Stock B.
• C)Currently the two stocks have the same price, but over time Stock B's price passes that of Stock A.
• D)Since Stock A's growth rate is twice that of Stock B, Stock A's future dividends will always be twice as high as Stock B's.

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