Stock a Has a Beta of 1

question 12

Multiple Choice

Stock A has a beta of 1.1 and Stock B's beta is 0.9.The market risk premium is 6%,and the risk-free rate is 6.3%.Both stocks have a constant dividend growth rate of 7%.If the market is 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 must have the higher required return.
• D)Stock B could have the higher expected return.

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Definitions:

Quantifier Negation

A transformation in formal logic that involves altering the scope of negation in relation to quantifiers in a statement.

Universal Generalization

A conclusion drawn about all members of a group based on observations or evidence from only some members of the group.

Existential Instantiation

A rule of inference used in logic to deduce that if there exists an element in a domain with a certain property, one can infer the existence of a specific example of that element.

Universal Instantiation

A logical rule that allows for the conclusion that what is true of all members of a class is true for any specific member.