Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?
A) Stock Y pays a higher dividend per share than Stock X.
B) Stock X pays a higher dividend per share than Stock Y.
C) One year from now, Stock X should have the higher price.
D) Stock Y has a lower expected growth rate than Stock X.
E) Stock Y has the higher expected capital gains yield.

Question

Quizplus · Accepted Answer

Since both stocks are in equilibrium and the stock market is efficient, their prices should reflect all available information. We can see from the data that Stock X has a higher expected growth rate and expected capital gains yield than Stock Y. However, Stock Y has a higher P/E ratio, suggesting that investors are willing to pay more for Stock Y's earnings. This could be because Stock Y pays a higher dividend per share than Stock X, making it more attractive to income-seeking investors. Therefore, choice B is the correct answer.

Stocks X and Y Have the Following Data