Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT? $\text {\underline{ A} }$ $\text {\underline{ B} }$

$\begin{array}{lcc}
\text { Price } & \$ 25 & \$ 40 \
\text { Expected growth } & 7 \% & 9 \% \
\text { Expected return } & 10 \% & 12 \%
\end{array}$

Question

Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT?                                               $\text {\underline{ A} }$      $\text {\underline{ B} }$

$\begin{array}{lcc}
\text { Price } & \$ 25 & \$ 40 \
\text { Expected growth } & 7 \% & 9 \% \
\text { Expected return } & 10 \% & 12 \%
\end{array}$

Quizplus · Accepted Answer

The following calculations show that answer d is correct.The others are all wrong. $\begin{array}{lcc} \text {} &\underline{\mathrm{A}} & \underline{\mathrm{B}} \ \text { Price } &\$25 & \$ 40 \ \text { Expected growth } & 7 \% & 9 \% \ \text { Expected growth } & 10 \% & 12 \% \ \end{array}$ A = P₀ = D₁/(r F1F1F1S1F1F1F10 g)= D₁ = P₀(r)F1F1F1S1F1F1F10 P₀(g)= $0.75 B = P₀ = D₁/(r F1F1F1S1F1F1F10 g)= D₁ = P₀(r)F1F1F1S1F1F1F10 P₀(g)= $1.20

Stocks a and B Have the Following Data A‾ \text {\underline{ A} } A​

Stocks a and B Have the Following Data $\text {\underline{ A} }$