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:

Derivative Financial Instrument

is a financial contract whose value is based on the performance of underlying assets, indices, or interest rates, used for speculation, hedging, or risk management.

Option

A financial instrument that gives the holder the right to buy or sell a certain number of shares or debentures in a company by a specified date at a stipulated price.

Shares

Shares represent portions of equity in a company or financial asset, entitling holders to a proportional share of profits through dividends, when declared.

Equity Transaction

Transactions that affect the ownership interest of shareholders in a company, including issues, buybacks, and sale of shares.