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

question 58

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?
$\begin{array}{lcc}&\mathrm{A} & \underline{\mathrm{B}} \\\text { Price } & \$ 25 & \$ 40 \\\text { Expected growth } & 7 \% & 9 \% \\\text { Expected return } & 10 \% & 12 \% \\\end{array}$

• 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:

Cash Flow From Assets

The total amount of money being transferred into and out of a company's assets, indicating the company's financial health and operational efficiency.

Operating Cash Flow

The cash generated by a company's normal business operations, reflecting its ability to generate sufficient cash to meet its needs.

Net New Borrowing

Net new borrowing is the difference between the amounts a company borrows and repays during a specific period, reflecting changes in its debt level.

Net New Equity

The difference between equity capital raised by issuing new shares and the equity capital reduced by buying back shares.