Stocks a and B Have the Following Data

question 3

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 stock price than Stock B.
• B) Stock A must have a higher dividend yield than Stock B.
• C) Stock B's dividend yield equals its expected dividend growth rate.
• D) Stock B must have the higher required return.
• E) Stock B could have the higher expected return.

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Definitions:

Impermeable Units

Impermeable units refer to layers of rock or sediment that water cannot easily pass through, significantly affecting the flow of groundwater and the storage of hydrocarbons.

Salt Dome

A type of geological formation where a mass of salt has risen upward through the overlying rock, often creating traps for oil and gas.

Oil Field

An area underlain by one or more reservoirs containing oil that can be extracted, often associated with gas deposits.

Impermeable Reservoir

A geological formation that cannot transmit water or other fluids, often trapping fluids such as oil or natural gas.