Suppose Stock a Sells for $30 Per Share and Pays

question 165

Multiple Choice

Suppose stock A sells for $30 per share and pays dividends of $1 per share per year.Stock B sells for $40 per share and pays dividends of $2 per share per year.Through the process of arbitrage,we would expect the price of:

• A) stock A to fall and/or the price of stock B to rise.
• B) stock A to rise and/or the price of stock B to fall.
• C) both stocks to rise or fall together.
• D) neither stock to change.

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