Stock a Has a Beta of 1

question 12

Multiple Choice

Stock A has a beta of 1.1 and Stock B's beta is 0.9.The market risk premium is 6%,and the risk-free rate is 6.3%.Both stocks have a constant dividend growth rate of 7%.If the market is 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 must have the higher required return.
• D)Stock B could have the higher expected return.

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Definitions:

Subduction Zone

A region where one tectonic plate moves under another, leading to geological phenomena like volcanic activity and earthquakes.

Isostatic Rebound

The rise of land masses that were depressed by the weight of ice sheets during glaciation, occurring as the ice melts and the land slowly returns to its original elevation.

Metamorphic Rocks

Rocks that have been transformed by heat, pressure, or chemically active fluids, altering their original composition or structure.

Plutonic Rocks

Intrusive igneous rocks that crystallize deep underground from magma, such as granite and diorite.