Two Constant Growth Stocks Are in Equilibrium, Have the Same

question 45

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:

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The fixed costs of production divided by the quantity of output produced, depicting the spread of fixed expenses over units produced.

Total Variable Costs

The sum of all costs that vary with output level, including materials, labor, and other expenses that increase as production increases.

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