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:

Materials Price Variance

The difference between the actual cost of materials purchased and the expected (or standard) cost, used to assess cost management performance in procurement.

Milk Chocolate

A type of chocolate that includes milk powder or condensed milk as a main ingredient, giving it a smooth, rich flavor and creamy texture.

Labor Rate Variance

The difference between the actual cost of labor and the expected (or standard) cost, used to assess efficiency and control payroll costs.

Labor Efficiency Variance

The difference between the actual labor hours used and the expected (standard) labor hours for the level of production, multiplied by the standard labor rate.