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:

Efficient Market

A market in which all available information is fully and immediately reflected in stock prices, making it impossible to achieve consistently higher returns.

Profit Opportunities

Situations where businesses can earn additional profits due to market conditions, innovations, or identifying unmet needs.

Laissez-faire Market

An economic model where exchanges between individuals or businesses are not subject to governmental regulations, preferential treatments, duties, or financial support.

Economics

The social science that studies the production, distribution, and consumption of goods and services.