Stocks a and B Have the Following Data

question 63

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?

• 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:

Sequential View

An approach or process that is carried out in a specific, orderly sequence over time.

Linear

Characterized by sequential progression where events or operations follow one after the other in a straight line.

Interrelated

Things or elements that are connected in such a way that each one influences or affects the others.