Stocks a and B Have the Same Required Return and the Same

question 47

Multiple Choice

Stocks A and B have the same required return and the same price,$25.Stock A's dividend is expected to grow at a constant rate of 10% per year,while Stock B's dividend is expected to grow at a constant rate of 5% per year.Which of the following statements is correct?

• A)Stock A's expected dividend at t = 1 is only half that of Stock B.
• B)Stock A has a higher dividend yield than Stock B.
• C)Currently the two stocks have the same price, but over time Stock B's price passes that of Stock A.
• D)Since Stock A's growth rate is twice that of Stock B, Stock A's future dividends will always be twice as high as Stock B's.

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Definitions:

World Bank

An international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects and economic development.

High-Income Economies

Countries with a gross national income per capita above a certain threshold, indicating a high level of economic prosperity.

Low-Income Economies

Economies characterized by their citizens earning significantly lower incomes on average, often measured by gross national income thresholds set by international institutions.

Economic Growth

is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time.