Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following Price Expected growth (constant) Required return A B $25 $25 10% 5% 15% 15% 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. The two stocks should not sell at the same price. If their prices are equal, then a disequilibrium must exist. 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. ง
Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following Price Expected growth (constant) Required return A B $25 $25 10% 5% 15% 15% 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. The two stocks should not sell at the same price. If their prices are equal, then a disequilibrium must exist. 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. ง
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 8P
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Question

Transcribed Image Text:Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following
Price
Expected growth (constant)
Required return
A
B
$25
$25
10%
5%
15%
15%
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. The two stocks should not sell at the same price. If their prices are equal, then a disequilibrium must exist.
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.
ง
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