Stocks X and Y Sell at the Same Price

question 38

Multiple Choice

Stocks X and Y sell at the same price.Stock X has a required return of 12% while Stock Y's required return is 10%.Stock X's dividend is expected to grow at a constant rate of 6% a year,while Stock Y's dividend is expected to grow at a constant rate of 4%.If the market is in equilibrium so that expected returns equal required returns,which of the following statements is correct?

• A)Stock X has a higher dividend yield than Stock Y.
• B)Stock Y has a higher dividend yield than Stock X.
• C)One year from now, Stock X's price is expected to be higher than Stock Y's price.
• D)Stock Y has a higher capital gains yield.

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Definitions:

Lack of Funds

A situation where there is an insufficient amount of financial resources available to meet the demands or objectives of a project or entity.