Stocks a and B Have the Following Data A)Stock a Must Have a Higher Dividend Yield Than Stock

question 57

Multiple Choice

Stocks A and B have the following data.The market risk premium is 6.0% and the risk-free rate is 6.4%.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT? $\begin{array}{llcc} \text { } & \underline{ \text {A} }& \underline{ \text {B} } \\ \text { Beta } &1.10&0.90\\ \text {Constant growth rate } &7.00\%&7.00\%\\\end{array}$

• A)Stock A must have a higher dividend yield than Stock B.
• B)Stock B's dividend yield equals its expected dividend growth rate.
• C)Stock B must have the higher required return.
• D)Stock B could have the higher expected return.
• E)Stock A must have a higher stock price than Stock B.

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Definitions:

Marginal Revenue Product Curve

A graphical representation showing how the extra revenue generated from employing one more unit of a resource changes as more of the resource is employed.

Demand Curve

A visual map indicating how consumer demand for a product varies with changes in its price.

Labor

The work performed by humans which is often measured in terms of hours or productivity and is a fundamental factor of production.

Market Wage

The prevailing pay rate for work of a given nature in a specific market or industry.