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

question 66

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?
$\begin{array} { l c c } & \mathrm { A } & \underline { 3 } \\\text { Price } &\$25&\$25\\\text { Expected growth (constant) } & 10 \% & 5 \% \\\text { Required retun } & 15 \% & 15 \%\\\end{array}$

• 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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Definitions:

Real Capital

Physical assets like machinery, buildings, and infrastructure that are used in the production of goods and services.

Equilibrium Interest Rate

The interest rate at which the demand for money balances exactly equals the supply of money in circulation, leading to economic equilibrium.

Taxation

The process by which governments charge fees on individuals and corporations to fund public spending.

Loanable Funds

Refers to the market where savers supply funds for loans to borrowers.