Stock X Has a Required Return of 10%,while Stock Y

question 6

Multiple Choice

Stock X has a required return of 10%,while Stock Y has a required return of 12%.Which of the following statements is correct?

• A)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.
• 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.

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Definitions:

Taxable Income

The portion of an individual's or entity's income used as the base for calculating income tax owed to the government.

Average Tax Rate

The ratio of the total amount of taxes paid to the total income, indicating how much of one's income goes to taxes.

Income Tax Schedule

A chart or table that displays tax rates applied to different levels of taxable income, used to calculate the amount of income tax owed.

Marginal Tax Rate

The rate at which the last dollar of income is taxed, indicating the percentage of tax applied to your income for each tax bracket in which you qualify.