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

question 106

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? $$\begin{array} { l c r } &\text {A}&\text {B}\\\text { Price } & \$ 25 & \$ 25 \\\text { Expected growth (constant) } & 10 \% & 5 \% \\\text { Required return } & 15 \% & 15 \%\end{array}$$

• A)Stock A has a higher dividend yield than Stock B.
• B)Currently the two stocks have the same price, but over time Stock B's price will pass that of A.
• C)Since Stock A's growth rate is twice that of Stock B, Stock A's future dividends will always be twice as high as Stock B's.
• D)The two stocks should not sell at the same price. If their prices are equal, then a disequilibrium must exist.
• E)Stock A's expected dividend at t = 1 is only half that of Stock B.

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