Stocks a and B Have the Following Data $\begin{array}{lcc}& \mathrm{A}& \underline{\mathrm{B}}\\\text { Beta } &1.10&0.90\\\text { Constant growth rate } & 7.00 \% & 7.00 \%\end{array}$

question 7

Multiple Choice

Stocks A and B have the following data. The market risk premium is 6.0% and the risk-free rate is 6.4%. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?
$\begin{array}{lcc}& \mathrm{A}& \underline{\mathrm{B}}\\\text { Beta } &1.10&0.90\\\text { Constant growth rate } & 7.00 \% & 7.00 \%\end{array}$

• A) stock a must have a higher dividend yield than stock b.
• B) stock b's dividend yield equals its expected dividend growth rate.
• C) stock b must have the higher required return.
• D) stock b could have the higher expected return.
• E) stock a must have a higher stock price than stock b.

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Definitions:

Commercial Paper

An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories, and meeting short-term liabilities.

Corporate Bonds

Long-term debt issued by private corporations typically paying semiannual coupons and returning the face value of the bond at maturity.

Invoice Price

The initial price that the manufacturer suggests the retailer to sell their product for, before any adjustments like discounts or rebates.

Accrued Interest

Interest that has been incurred but not yet paid or received, often relevant in bond investments and loans.