Two constant growth stocks are in equilibrium,have the same price,and have the same required rate of return.Which of the following statements is CORRECT?
A) The two stocks must have the same dividend per share.
B) If one stock has a higher dividend yield,then it must also have a lower dividend growth rate.
C) If one stock has a higher dividend yield,then it must also have a higher dividend growth rate.
D) The two stocks must have the same dividend growth rate.
E) The two stocks must have the same dividend yield.

Question

Quizplus · Accepted Answer

EFor stocks in equilibrium with the same price and required rate of return, if one has a higher dividend yield, it must compensate with a lower growth rate to maintain the same required rate of return, hence B is correct. Additionally, since they have the same price and required rate of return, their dividend yields must also be the same to satisfy the dividend discount model for constant growth stocks, making E correct.

Two Constant Growth Stocks Are in Equilibrium,have the Same Price,and