Stocks a and B Have the Following Data A)The Two Stocks Could Not Be in Equilibrium with the Market

question 231

Multiple Choice

Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT? $$\begin{array} { l c r } &\text {A}&\text {B}\\\text { Price } & \$ 25 & \$ 40 \\\text { Expected growth } & 7 \% & 9 \% \\\text { Expected return } & 10 \% & 12 \%\end{array}$$

• A)The two stocks could not be in equilibrium with the numbers given in the question.
• B)A's expected dividend is $0.50.
• C)B's expected dividend is $0.75.
• D)A's expected dividend is $0.75 and B's expected dividend is $1.20.
• E)The two stocks should have the same expected dividend.

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Definitions:

Fixed Costs

Those costs that remain essentially at the same level, regardless of any changes in the volume of production.

Variable Cost

Expenses that change in proportion to the activity of a business, such as costs for raw materials or production.

Charge Price

The action of setting a specific amount of money as the cost for a product or service.

Profit Margin Percentage

A financial metric that measures the amount of net income generated as a percentage of revenue.