The Required Returns of Stocks X and Y Are RX

question 80

Multiple Choice

The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT?

• A) if stock y and stock x have the same dividend yield, then stock y must have a lower expected capital gains yield than stock x.
• B) if stock x and stock y have the same current dividend and the same expected dividend growth rate, then stock y must sell for a higher price.
• C) the stocks must sell for the same price.
• D) stock y must have a higher dividend yield than stock x.
• E) if the market is in equilibrium, and if stock y has the lower expected dividend yield, then it must have the higher expected growth rate.

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Definitions:

Lion Gate

The main entrance of the Bronze Age citadel of Mycenae in Greece, famous for its relief sculpture of two lions standing on either side of a column.

Post And Lintel

An architectural system involving the use of two upright posts supporting a horizontal beam or lintel, found in many ancient structures.

Tholos Tombs

Beehive-shaped burial structures made of stone, found in the Mycenaean civilization, used for royal or noble interments.

Corbeled Dome Structure

A dome constructed using the corbeling technique, where stones are laid horizontally, each one extending slightly beyond the one below, until the opening is closed.