Which of the following statements is CORRECT? (Hint: Dividend yield (D1/P0) is the difference between Re and g. Calculate Re first by using CAPM.) A B Beta 1.10 0.90 Constant growth rate 7.00% 7.00% Stock A must have a higher stock price than Stock B. Stock A must have a higher dividend yield than Stock B. Stock B’s dividend yield equals its expected dividend growth rate. Stock B must have the higher required return. Stock B could have the higher expected return.
Which of the following statements is CORRECT? (Hint: Dividend yield (D1/P0) is the difference between Re and g. Calculate Re first by using CAPM.) A B Beta 1.10 0.90 Constant growth rate 7.00% 7.00% Stock A must have a higher stock price than Stock B. Stock A must have a higher dividend yield than Stock B. Stock B’s dividend yield equals its expected dividend growth rate. Stock B must have the higher required return. Stock B could have the higher expected return.
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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Stocks A and B have the following data. The market risk premium is 6.0% and the risk-free rate is 6.4%. Which of the following statements is CORRECT?
(Hint: Dividend yield (D1/P0) is the difference between Re and g. Calculate Re first by using
A B
Beta 1.10 0.90
Constant growth rate 7.00% 7.00%
- Stock A must have a higher stock price than Stock B.
- Stock A must have a higher dividend yield than Stock B.
- Stock B’s dividend yield equals its expected
dividend growth rate. - Stock B must have the higher required return.
- Stock B could have the higher expected return.
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