Two Constant Growth Stocks Are in Equilibrium, Have the Same

question 34

Multiple Choice

Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT?

• A) if one stock has a higher dividend yield, it must also have a lower dividend growth rate.
• B) if one stock has a higher dividend yield, it must also have a higher dividend growth rate.
• C) the two stocks must have the same dividend growth rate.
• D) the two stocks must have the same dividend yield.
• E) the two stocks must have the same dividend per share.

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Definitions:

Constant Sales Mix

An assumption in cost-volume-profit analysis that the sales mix will remain unchanged as sales levels vary.

Assumption

A basic premise or belief that is accepted as true without proof as the basis for argument or inference.

Multiproduct Company

A business entity that manufactures or sells more than one type of product, often across different product lines or industries.

Sales Volumes

The total quantity of a product or service sold by a company during a specific period.