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?

Question

Quizplus · Accepted Answer

DStocks in equilibrium with the same price and required rate of return but different dividend yields must adjust through their growth rates to maintain equilibrium. A higher dividend yield with a lower growth rate (B) can balance the return expectations similar to a stock with a lower dividend yield and a higher growth rate. Additionally, if two stocks are in equilibrium with the same required rate of return and price, they must have the same dividend growth rate (D) to ensure their future cash flows are valued similarly by the market.

Two Constant Growth Stocks Are in Equilibrium, Have the Same