and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? A B Price $25 $25 Expected growth (constant) 10% 5% Required return 15% 15% Select one: a. The two stocks should not sell at the same price. If their prices are equal, then a disequilibrium must exist. b.
and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? A B Price $25 $25 Expected growth (constant) 10% 5% Required return 15% 15% Select one: a. The two stocks should not sell at the same price. If their prices are equal, then a disequilibrium must exist. b.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?
| A | B | |
| Price |
$25 |
$25 |
| Expected growth (constant) |
10% |
5% |
| Required return |
15% |
15% |
Select one:
a.
The two stocks should not sell at the same price. If their prices are equal, then a disequilibrium must exist.
b.
Stock A has a higher dividend yield than Stock B.
c.
Stock A's expected dividend at t = 1 is only half that of Stock B.
d.
Currently the two stocks have the same price, but over time Stock B's price will pass that of A.
e.
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.
Expert Solution
Step 1
The constant growth model is used extensively to determine the price of stock and from the price of stock we can say that it is undervalued or overvalued.
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